Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-71942
PROSPECTUS
[Logo of AmerisourceBergen]
OFFER TO EXCHANGE
8 1/8% Senior Notes Due 2008 for all outstanding
8 1/8% Senior Notes Due 2008
of
AmerisourceBergen Corporation
The exchange offer will expire at 5:00 p.m.,
New York City time on November 30, 2001, unless extended.
-------------
Terms of the exchange offer:
- We will exchange all old notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
- You may withdraw tenders of old notes at any time prior to the
expiration of the exchange offer.
- We believe that the exchange of old notes will not be a taxable event
for U.S. federal income tax purposes, but you should see "United States
Federal Income Tax Considerations" on page 106 for more information.
- We will not receive any proceeds from the exchange offer.
- The terms of the new notes are substantially identical to the old
notes, except that the new notes are registered under the Securities Act
of 1933 and the transfer restrictions and registration rights
applicable to the old notes do not apply to the new notes.
-------------
See "Risk Factors" beginning on page 18 for a discussion of risks that
should be considered by holders prior to tendering their old notes.
-------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus is October 30, 2001.
AmerisourceBergen Corporation
Table of Additional Registrants
Primary Standard
Industrial
State of Incorporation Classification IRS Employer
Name or Organization Code Number Identification No.
---- ---------------------- ---------- ------------------
AmeriSource Corporation Delaware 5122 23-2353106
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
AmeriSource Health Corporation Delaware 5122 23-2546940
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
AmeriSource Health Services Corporation Delaware 5122 52-1489606
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
AmeriSource Heritage Corporation Delaware 5122 51-0382309
1403 Foulk Road, Suite 106
Wilmington, DE 19803
(610) 727-7000
AmeriSource Sales Corporation Delaware 5122 23-2892148
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
Alliance Health Services, Inc. Delaware 6719 22-3226432
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Alliance Home Health Care, Inc Connecticut 6719 06-1341698
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
ASD Hemophilia Program, L. P. California 5129 33-0843563
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
ASD Hemophilia Management, LLC Delaware 5129 33-0843562
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
ASD Specialty Healthcare, Inc. California 5129 33-0800482
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
BBC Laboratories California 6719 95-2657727
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
BBC Packing Corporation Delaware 6719 33-0861595
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
BBC Special Packaging, Inc. Delaware 6719 33-0851593
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
BBC Transportation Company California 6719 33-0183052
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Bergen Brunswig Corporation New Jersey 5129 22-1444512
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Bergen Brunswig Drug Company California 5129 95-2574740
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Bergen Brunswig Realty Services, Inc. California 6719 94-1353448
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
BBC Operating Sub, Inc. Delaware 6719 33-0845757
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Beverly Acquisition Corporation Delaware 6719 71-0765364
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Brownstone Pharmacy, Inc. Connecticut 8099 06-0765364
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Capstone Med, Inc. Delaware 6719 52-1993496
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Capstone Pharmacy of Delaware, Inc. Maryland 5912 52-1191584
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
CD Smith Healthcare, Inc. Missouri 5122 44-0437360
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
Century Advertising, Inc. California 6719 95-3684102
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Choice Medical, Inc. Kentucky 5734 61-1152185
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Computran Systems, Inc. Oregon 8099 93-0675109
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Compuscript, Inc New York 5129 13-3089063
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Corrections Pharmacies of California, LP Delaware 6719 33-0849535
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Corrections Pharmacies L.L.C. Delaware 6719 25-1825501
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Corrections Pharmacies of Hawaii, LP Delaware 6719 33-0854316
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Corrections Pharmacies Licensing Company, LLC Delaware 6719 33-1825502
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
DD Wholesale, Inc. Massachusetts 6719 04-3133621
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Drug Service, Inc. California 6719 77-0003551
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Dunnington Drug, Inc. Delaware 6719 22-3122469
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Dunnington Rx Services of Massachusetts, Inc. Massachusetts 6719 04-3122469
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Dunnington Rx Services of Rhode Island, Inc. Rhode Island 8099 05-0460848
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Durr-Fillauer Medical, Inc. Delaware 6599 63-0063220
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Express Pharmacy Services, Inc. Florida 6719 59-2919363
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Family Center Pharmacy, Inc. Pennsylvania 5912 25-1555759
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
General Drug Company Illinois 5122 36-1124740
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
Goot Nursing Home Pharmacy, Inc. Arizona 5912 86-0785205
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Goot Westbridge Pharmacy, Inc. Arizona 6719 86-0588776
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Goot's Goodies, Inc. Arizona 5499 86-0561754
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Goot's Pharmacy & Orthopedic Supply, Inc. Arizona 6719 None
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Green Barn, Inc. Delaware 6599 33-0883533
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Health Services Capital Corporation Delaware 6719 51-0294301
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
Healthcare Prescription Services, Inc. Indiana 6719 35-1868731
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Home Medical Equipment Health Company California 6719 95-4506229
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Insta-Care Holdings, Inc. Florida 6719 59-2213553
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Insta-Care Pharmacy Services Corporation Texas 8099 59-1817412
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Integrated Commercialization Solutions, Inc. California 5129 75-2758166
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Inteplex, Inc. California 7379 33-0682992
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
James Brudnick Company, Inc. Delaware 5122 36-3926923
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
K/S Instrument Corp. New Jersey 6719 13-2611846
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
LAD Drug Corporation California 6719 None
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Los Angeles Drug Corporation California 6719 None
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
MDP Properties, Inc. California 6719 95-6054644
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Management Systems of America, Inc. Delaware 8099 62-1736907
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Medical Health Industries, Inc. Delaware 6719 39-1140633
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Medical Initiatives, Inc. Florida 8099 59-3550338
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Medidyne, Corp New Jersey 5129 22-3285528
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Omni Med B, Inc. Connecticut 6719 06-1303450
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Pharmacy Dynamics Group, Inc Florida 6719 65-0166808
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Pharmacy Corporation of America, Inc. California 8099 95-3849613
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Pharmacy Corporation of America Delaware 8099 71-0776297
-Massachusetts, Inc.
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Pharmacy Healthcare Solutions, Ltd. Texas 5122 75-2661419
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
PharMerica, Inc. Delaware 5122 11-2310352
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
PharMerica Drug Systems, Inc. Maryland 8099 52-1198121
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Premier Pharmacy, Inc. Delaware 8099 58-2006361
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
RightPak, Inc. Delaware 3399 33-0861592
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Rombro's Drug Center, Inc. Maryland 6719 52-0748791
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
SBS Pharmaceuticals, Inc. Delaware 5122 36-1124740
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
Southwest Pharmacies, Inc. Arizona 8099 86-0362826
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Southwestern Drug Corporation Texas 6719 00-0986055
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Stadt Solutions, LLC Delaware 5122 33-0810294
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Tmesys, Inc. Florida 8099 59-3143128
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
The Allen Company Florida 6719 33-0056791
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
The Lash Group, Inc. Delaware 5416 52-1663991
4000 Metropolitan Drive
Orange, CA 92868
(714) 385-4000
Value Apothecaries, Inc. Texas 6719 75-2660314
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
TABLE OF CONTENTS
Forward-Looking Statements........................... i The Exchange Offer................................... 48
Summary Unaudited Pro Forma Consolidated Management........................................... 56
Financial Data AmerisourceBergen.................... 11 Ownership Of Capital Stock........................... 58
Summary Historical Financial Data AmeriSource........ 14 Description Of Capital Stock......................... 58
Summary Historical Financial Data Bergen............. 16 Description Of Other Indebtedness.................... 58
Risk Factors......................................... 19 Description Of Notes................................. 64
Merger And Related Transactions...................... 25 Certain United States Federal Tax Consequences....... 106
Use Of Proceeds...................................... 27 Plan Of Distribution................................. 110
Ratio of Earnings to Fixed Charges................... 27 Where You Can Find Additional Information............ 111
AmerisourceBergen Corporation Unaudited Pro Forma Legal Matters........................................ 111
Consolidated Condensed Financial Information........ 28 Experts.............................................. 111
AmeriSource And Bergen Selected Consolidated Incorporation Of Documents By Reference.............. 112
Financial Data...................................... 36 Index To Consolidated Balance Sheet.................. F-1
Business............................................. 40
You should rely only on the information contained in this prospectus and
any supplement, including the periodic reports and other information we file
with the Securities and Exchange Commission or to which we have referred you.
See "Where you Can Find Additional Information". We have not authorized anyone
to provide you with information that is different. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not
making an offer to sell these securities in any jurisdiction where the offer or
sale is not permitted, where the person making the offer is not qualified to do
so, or to any person who cannot legally be offered the securities. You should
assume that the information appearing in this prospectus is accurate only as of
the date on the front cover of this prospectus or any supplement.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of new notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933, as amended, which we refer to as the Securities Act. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of new notes received in exchange
for old notes where the old notes were acquired by the broker-dealer as a result
of market-making activities or other trading activities. We have agreed that,
for a period of 180 days after the expiration date, we will make this prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements relate
to analyses and other information that are based on forecasts of future results
and estimates of amounts not yet determinable.
These statements also relate to our future prospects, developments and
business strategies. The statements contained in this prospectus that are not
statements of historical fact may include forward-looking statements that
involve a number of risks and uncertainties.
We have used the words "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "plan," "predict," "project," "will" and similar
terms and phrases, including references to assumptions, in this prospectus to
identify forward-looking statements. These forward-looking statements are made
based on our management's
-i-
expectations and beliefs concerning future events affecting us and are subject
to uncertainties and factors relating to our operations and business
environment, all of which are difficult to predict and many of which are beyond
our control, that could cause our actual results to differ materially from those
matters expressed in or implied by these forward-looking statements. The
following factors are among those that may cause actual results to differ
materially from our forward-looking statements:
. acquisitions and dispositions;
. changes in general economic, business and industry conditions;
. changes in pharmaceutical manufacturer pricing and distribution
policies;
. changes in political and social conditions and local regulations;
. significant litigation;
. changes in sales mix;
. competition;
. disruptions of established supply channels;
. degree of acceptance of new products;
. difficulty of forecasting sales at various times in various markets;
. the availability, terms and deployment of capital; and
. the other factors discussed below under the heading "Risk Factors" and
elsewhere in this prospectus.
All of our forward-looking statements should be considered in light of
these factors. We undertake no obligation to update our forward-looking
statements or risk factors to reflect new information, future events or
otherwise.
-ii-
SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements
(including the accompanying notes) appearing elsewhere or incorporated by
reference in this prospectus. Unless the context otherwise requires:
. "we," "us," "AmerisourceBergen" and "the Company" refer to
AmerisourceBergen Corporation and its subsidiaries on a consolidated
basis after the merger described below.
. "AmeriSource" refers to AmeriSource Health Corporation and its
subsidiaries on a consolidated basis.
. "Bergen" refers to Bergen Brunswig Corporation and its subsidiaries on
a consolidated basis.
. "Pro forma" means adjusted as if the following had been completed as
of the beginning of the relevant time period: (i) the merger; (ii) the
offering of the old notes; (iii) the repayment of amounts outstanding
under the former credit facilities of AmeriSource and Bergen; (iv) the
closing of the new credit facility; (v) the repurchase of
approximately $184.6 million of PharMerica notes tendered under the
terms of the tender offer described below and (vi) the repurchase of
all outstanding Durr-Fillauer debentures pursuant to the terms of the
change of control offer described below.
. All industry statistics in this prospectus were obtained from data
prepared or provided by the National Wholesale Druggists' Association
and other recognized industry sources.
The Exchange Offer
On August 14, 2001, we issued and sold $500.0 million aggregate principal
amount of Series A 8 1/8% Senior Notes Due 2008, referred to as the old notes.
In connection with that sale, we entered into a registration rights agreement
with the initial purchasers of the old notes in which we agreed to deliver this
prospectus to you and to complete an exchange offer for the old notes. As
required by the registration rights agreement, we are offering to exchange
$500.0 million aggregate principal amount of our new Series B 8 1/8% Senior
Notes Due 2008, referred to as the new notes, the issuance of which will be
registered under the Securities Act, for a like aggregate principal amount of
our old notes. We refer to this offer to exchange new notes for old notes in
accordance with the terms set forth in this prospectus and the accompanying
letter of transmittal as the exchange offer. You are entitled to exchange your
old notes for new notes. We urge you to read the discussions under the headings
"The Exchange Offer" and "The New Notes" in this Summary for further information
regarding the exchange offer and the new notes.
AmerisourceBergen
We are a leading national wholesale distributor of pharmaceutical products
and related healthcare services and solutions with pro forma operating revenue
(excluding bulk shipments) of approximately $30 billion, pro forma adjusted
earnings before interest expense, taxes, depreciation and amortization
("Adjusted EBITDA" as defined below) of approximately $584 million and pro forma
operating income of approximately $426 million for the fiscal year ended
September 30, 2000.
-1-
We were formed in March 2001 when AmeriSource and Bergen (the "predecessor
companies") announced their intent to combine in a merger-of-equals to form our
company. The merger will enable us to significantly enhance our competitive
position with:
. enhanced scale of operations;
. operating and administrative cost savings;
. improved purchasing efficiencies;
. improved working capital management; and
. broadened product offering.
The merger occurred on August 29, 2001. As a result of the merger, we
expect to achieve estimated cost savings of approximately $150 million per year
by the end of the third year following the merger from, among other things, the
consolidation of distribution facilities and related working capital
improvements, the elimination of duplicative administrative functions and
generic inventory purchasing efficiencies. We also expect to benefit from lower
financing costs as a result of the combination.
Our greater scale of operations enhances our competitive position in our
core wholesale pharmaceutical distribution business through improved access to
capital, enhanced purchasing efficiencies and a broader service offering to our
customers. We have several initiatives to provide additional value-added
services to our customers including pharmaceutical packaging, management
information and consulting services and specialty pharmaceutical product
distribution and services.
Our businesses operate in two segments. The first segment, pharmaceutical
distribution, includes our core wholesale pharmaceutical drug distribution
business, ASD Specialty Healthcare--our pharmaceutical alternate site
distribution business and American Health Packaging--our pharmaceutical
repackaging business. Pharmaceutical distribution also includes a number of
smaller specialty units in areas such as management reimbursement consulting
services and third party logistics services for pharmaceutical manufacturers.
Our second operating segment is PharMerica, a leading national provider of
institutional pharmacy services in long-term care and alternate site settings.
PharMerica also provides mail-order pharmacy services to chronically and
catastrophically ill patients under workers' compensation programs.
We are attractively positioned in the market as the only national wholesale
pharmaceutical distributor exclusively focused on pharmaceutical product
distribution, services and solutions. We serve the following major market
segments:
. acute care hospitals and health systems;
. independent retail pharmacies;
. the alternate site market; and
. national and regional retail pharmacy chains.
We currently serve customers through a geographically diverse network of
distribution centers in the United States. We are typically the primary source
of supply for pharmaceutical and related products to our customers.
We offer a broad range of solutions to our customers and suppliers designed
to enhance the efficiency and effectiveness of their operations, allowing them
to improve the delivery of healthcare to patients and consumers and lower
overall costs in the pharmaceutical supply chain.
Our customer base is geographically diverse and balanced with no single
customer representing more than 7.3% of pro forma fiscal 2000 operating revenue.
The merger combined two companies with complementary customer bases that have
minimal overlap. We have one of the leading market positions in the acute care
hospital and health systems market, which represented approximately 30% of pro
forma fiscal 2000 operating revenue, and the independent retail pharmacy market,
which represented approximately 29% of pro forma fiscal 2000 operating
-2-
revenue. We also have a strong presence with national and regional retail
pharmacy chains, which represented 17% of our pro forma fiscal 2000 operating
revenue.
In the attractive alternate site market, we supply pharmaceuticals and
other related products and services to the oncology, nephrology, vaccine, plasma
and other specialty healthcare markets. We serve a continuum of customers
including physicians' offices and clinics, skilled nursing facilities, mail-
order facilities, assisted living centers and chronically ill patients. We also
provide plasma products to acute care hospitals. The alternate site market
represented approximately 24% of pro forma fiscal 2000 operating revenue.
Industry Overview
We have benefited from the significant growth of the full service wholesale
drug industry in the United States. According to an independent third party
provider of information to the pharmaceutical and healthcare industry, industry
sales grew from approximately $68 billion in 1995 to approximately $140 billion
in 2000 and are expected to grow to approximately $264 billion in 2005.
The factors contributing to the growth of the full service wholesale drug
industry in the United States, and other favorable industry trends, include:
. an aging population;
. the introduction of new pharmaceuticals;
. the increased use of outpatient drug therapy;
. rising pharmaceutical prices; and
. the expiration of patents for brand name pharmaceuticals.
We expect wholesale drug revenue, gross margins and profitability will
continue to benefit from these trends. For example, sales of pharmaceuticals to
individuals over age 65, who suffer from greater incidence of chronic illnesses
and disabilities and account for higher annual pharmaceutical expenditures, are
expected to increase. The population in this age group is projected to increase
from 35 million in 2000 to more than 39 million by the year 2010. Also, the
introduction of new compounds through traditional research and development as
well as the advent of new research, production and delivery methods, such as
biotechnology and gene research and therapy, have been responsible for
significant increases in pharmaceutical sales. We expect this trend to continue
as manufacturers strive to generate new compounds and delivery methods that are
more effective in treating diseases. We also expect that, consistent with
historical trends, price increases on pharmaceutical products will continue to
equal or exceed the overall Consumer Price Index. These price increases create
opportunities for appreciation on inventory acquired in advance of price
increases, thereby enhancing profitability. We also believe that gross profit
margins will be favorably impacted as a significant number of patents for
widely-used brand name pharmaceutical products will expire in the next several
years, as generic products have historically provided a greater gross profit
margin opportunity than brand name products.
Business Strategy
AmerisourceBergen's business strategy is anchored in national
pharmaceutical distribution and services, reinforced by the value-added
healthcare solutions we provide our customers and suppliers. This focused
strategy has significantly expanded our predecessors' businesses over the past
five years and we believe we are well-positioned to continue to grow revenue and
increase operating income through the execution of the following key elements of
our business strategy:
. Continue Growth in Existing Markets. We believe that we are well-
positioned to continue to grow in our existing markets by: (i)
providing superior distribution services to our customers and suppliers
and (ii) delivering specific programs and services unique to each of
our customer groups. We strive to provide exceptional service to our
customers, which is reflected in the consistently high rankings
achieved by our predecessor companies in recent customer surveys.
-3-
. Expand Growth Opportunities through Healthcare Solutions for Customers.
We are continually enhancing our services and packaging these services
into programs designed to enable customers to improve sales and compete
more effectively. As a result of the merger, we will broaden the range
of value-added solutions that AmeriSource and Bergen offered their
customers. We expect to integrate complementary AmeriSource and Bergen
services and programs, such as generic purchasing programs, independent
retail pharmacy marketing programs and customer order and inventory
management systems offered to retail pharmacies, into a comprehensive
solution package consisting of the best features of existing services
and programs. We intend to market these solutions to existing customers
and to use the increased range of services to attract new customers.
. Expand Growth Opportunities through Healthcare Solutions for Suppliers.
We have been developing solutions for suppliers to improve the
efficiency of the healthcare supply chain. Programs for suppliers to
assist with rapid new product launches, promotional and marketing
services to accelerate product sales, custom packaging, and product
data reporting are examples of value-added solutions currently offered.
We believe these services will continue to expand, further contributing
to our revenue and income growth. We also intend to acquire companies
that deliver complementary value-added products and services to our
existing customers and suppliers.
. Improve Operating and Capital Efficiencies. We believe we already have
one of the lowest operating cost structures among our major national
competitors. We expect to lower our cost structure further as we
consolidate our existing distribution facility network and establish
new, more efficient distribution centers. We also intend to further
reduce operating expenses as a percentage of revenue by eliminating
duplicate administrative functions. These measures are designed to
reduce marginal operating costs, to provide greater access to financing
sources and to reduce the cost of capital. In addition, we believe we
will continue to achieve productivity and operating income gains as we
invest in and continue to implement warehouse automation technology,
adopt "best practices" in warehousing activities and increase operating
leverage due to increased volume per full service distribution
facility.
-4-
The Merger and Related Transactions
On March 16, 2001, AmeriSource and Bergen entered into an Agreement and
Plan of Merger, pursuant to which AmeriSource and Bergen would be combined in a
merger-of-equals to form AmerisourceBergen. The closing of the merger occurred
on August 29, 2001. We believe that the combined strengths of AmeriSource and
Bergen will enable us to achieve significant operating efficiencies and produce
substantial benefits for our customers and stockholders. By combining the
companies, we believe we will create the potential for stronger operating
results and a stronger financial condition than either company could achieve on
its own.
We refinanced the former senior secured credit facilities of AmeriSource
and Bergen, which had outstanding balances of $80.9 and $469.6 million,
respectively, at June 30, 2001, and the PharMerica debt described below with the
proceeds of the offering of the old notes together with borrowings under a new
credit facility with a syndicate of banks led by The Chase Manhattan Bank, an
affiliate of J.P. Morgan Securities Inc., and Bank of America, N.A., an
affiliate of Banc of America Securities LLC. The new credit facility provides an
aggregate commitment of $1.3 billion, of which $1.0 billion consists of
revolving loan commitments and $300.0 million consists of term loan commitments.
We commenced a change of control offer with respect to Bergen's $20.6 million
aggregate principal amount of 7% convertible subordinated debentures due 2006
originally issued by Durr-Fillauer Medical Inc., a subsidiary of Bergen,
pursuant to the terms of the applicable indenture.
In connection with the merger, we refinanced the outstanding debt
securities of Bergen's PharMerica subsidiary through a tender offer. On July 17,
2001, PharMerica commenced the tender offer. Approximately $184.6 million of
PharMerica notes were tendered pursuant to the tender offer. The remaining
$123.5 million of PharMerica notes may be tendered pursuant to the change of
control offer described below. In connection with the tender offer, PharMerica
successfully solicited consents from the holders of the PharMerica notes to
eliminate substantially all of the restrictive covenants in the indenture
relating to such notes, including a covenant restricting PharMerica's ability to
guarantee the new notes offered in exchange for the old notes hereby. The
obligation of PharMerica to purchase notes in the tender was conditioned upon,
among other things, (i) the consummation of the merger and (ii) the consummation
of offering of the old notes. The offering of the old notes was not conditioned
upon consummation of the tender offer, but the release from escrow of the funds
from the sale of the old notes was conditioned upon PharMerica and certain of
our subsidiaries becoming a guarantor of the old and the new notes. Since all
of the PharMerica notes were not tendered pursuant to the tender offer, we were
required to make a change of control offer to holders of the PharMerica notes at
a redemption price equal to 101% of the principal amount thereof plus accrued
and unpaid interest to the date of redemption.
Cash funding requirements on a pro forma basis as of June 30, 2001 to
consummate the refinancings and pay costs associated with the merger were $913.8
million, which were provided by: (i) $413.8 million of borrowings under the new
credit facility, of which $113.8 million consisted of revolving credit
borrowings and $300.0 million consisted of term loans and (ii) $500.0 million of
gross proceeds from the issuance of the old notes. The refinancing of the former
secured credit facilities, the PharMerica debt, the Durr-Fillauer debentures,
the borrowings under the new credit facility and the offering of the old notes
are referred to herein as the "financings."
The following table sets forth the sources and uses of funds for these
transactions assuming that (i) all Durr-Fillauer debentures are repurchased and
(ii) $184.6 million of the PharMerica notes were properly tendered and not
withdrawn pursuant to the tender offer.
Amount
-----------------
Source of Funds: (in millions)
8 1/8% Senior Notes due 2008..................................................... $500.0
Revolving borrowings under new credit facility................................... 113.8
Term loans under new credit facility............................................. 300.0
----------------
Total sources................................................................. $913.8
================
-5-
Uses of Funds:
Refinancing of AmeriSource's and Bergen's former outstanding bank debt(1)........ $550.5
Repurchase of outstanding PharMercia notes(2).................................... 184.6
Repurchase of all outstanding Durr-Fillauer debentures(3)........................ 20.6
Merger and financing costs(4).................................................... 158.1
----------------
Total uses.................................................................... $913.8
================
_____________
(1) Based upon amounts outstanding at June 30, 2001.
(2) Includes the PharMerica notes that were repurchased and cancelled pursuant
to the tender offer, but excludes the applicable premium and consent fees
that were included in fees and expenses. Excludes any PharMerica notes
which may be repurchased and cancelled pursuant to a change of control
offer.
(3) Includes the balance of the Durr-Fillauer debentures that are expected to
be repurchased and cancelled pursuant to a change of control offer.
(4) Includes estimated payments pursuant to executive compensation agreements,
merger transaction fees and fees associated with the financings.
-6-
The Exchange Offer
Securities Offered........................ $500,000,000 aggregate principal
amount of 8 1/8% Senior Notes Due
2008. The terms of the new notes and
old notes are identical in all
material respects, except for
transfer restrictions and
registration rights relating to the
old notes.
The Exchange Offer........................ We are offering the new notes to you
in exchange for a like principal
amount of old notes. Old notes may
be exchanged only in integral
multiples of $1,000. We intend by
the issuance of the new notes to
satisfy our obligations contained in
the registration rights agreement.
Expiration Date; Withdrawal of Tender..... The exchange offer will expire at
5:00 p.m., New York City time, on
November 30, 2001, or such later
date and time to which it may be
extended by us. The tender of old
notes pursuant to the exchange offer
may be withdrawn at any time prior
to the expiration date of the
exchange offer. Any old notes not
accepted for exchange for any reason
will be returned without expense to
the tendering holder thereof as
promptly as practicable after the
expiration or termination of the
exchange offer.
Conditions to the Exchange Offer.......... Our obligation to accept for
exchange, or to issue new notes in
exchange for, any old notes is
subject to customary conditions
relating to compliance with any
applicable law or any applicable
interpretation by the staff of the
Securities and Exchange Commission,
the receipt of any applicable
governmental approvals and the
absence of any actions or
proceedings of any governmental
agency or court which could
materially impair our ability to
consummate the exchange offer. We
currently expect that each of the
conditions will be satisfied and
that no waivers will be necessary.
See "The Exchange Offer --
Conditions to the Exchange Offer."
Procedures for Tendering Old Notes........ If you wish to accept the exchange
offer and tender your old notes, you
must complete, sign and date the
Letter of Transmittal, or a
facsimile of the Letter of
Transmittal, in accordance with its
instructions and the instructions in
this prospectus, and mail or
otherwise deliver such Letter of
Transmittal, or the facsimile,
together with the old notes and any
other required documentation, to the
exchange agent at the address set
forth herein. See "The Exchange
Offer -- Procedures for Tendering
Old Notes."
Use of Proceeds........................... We will not receive any proceeds
from the exchange offer.
Exchange Agent............................ The Chase Manhattan Bank and Trust
Company, National Association is
serving as the exchange agent in
connection with the exchange offer.
Federal Income Tax Consequences........... The exchange of notes pursuant to
the exchange offer should not be a
taxable event for federal income tax
purposes. See "United States Federal
Income Tax Consequences."
-7-
Consequences of Exchanging Old Notes Pursuant to the Exchange Offer
Based on certain interpretive letters issued by the staff of the Securities
and Exchange Commission to third parties in unrelated transactions, we are of
the view that holders of old notes (other than any holder who is an "affiliate"
of our company within the meaning of Rule 405 under the Securities Act) who
exchange their old notes for new notes pursuant to the exchange offer generally
may offer the new notes for resale, resell such new notes and otherwise transfer
the new notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided:
. the new notes are acquired in the ordinary course of the holders'
business;
. the holders have no arrangement with any person to participate in a
distribution of the new notes; and
. neither the holder nor any other person is engaging in or intends to
engage in a distribution of the new notes.
Each broker-dealer that receives new notes for its own account in exchange
for old notes must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes. See "Plan of Distribution." In addition, to
comply with the securities laws of applicable jurisdictions, the new notes may
not be offered or sold unless they have been registered or qualified for sale in
the applicable jurisdiction or in compliance with an available exemption from
registration or qualification. We have agreed, under the registration rights
agreement and subject to limitations specified in the registration rights
agreement, to register or qualify the new notes for offer or sale under the
securities or blue sky laws of the applicable jurisdictions as any holder of the
notes reasonably requests in writing. If a holder of old notes does not
exchange the old notes for new notes according to the terms of the exchange
offer, the old notes will continue to be subject to the restrictions on transfer
contained in the legend printed on the old notes. In general, the old notes may
not be offered or sold, unless registered under the Securities Act, except under
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Holders of old notes do not have any
appraisal or dissenters' rights under the Delaware General Corporation Law in
connection with the exchange offer. See "The Exchange Offer -- Consequences of
Failure to Exchange; Resales of New Notes."
The old notes are currently eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages (PORTAL) market. Following
commencement of the exchange offer but prior to its completion, the old notes
may continue to be traded in the PORTAL market. Following completion of the
exchange offer, the new notes will not be eligible for PORTAL trading.
-8-
The New Notes
The terms of the new notes and the old notes are identical in all material
respects, except for transfer restrictions and registration rights relating to
the old notes. Included within any reference to the term "notes" throughout
this prospectus is a reference to both the new notes and the old notes offered
to be exchanges hereby, unless the context otherwise requires.
Issuer.......................... AmerisourceBergen Corporation.
New Notes Offered............... $500,000,000 aggregate principal amount of
8 1/8% Senior Notes due 2008.
Maturity Date................... September 1, 2008.
Interest........................ 8 1/8% per annum, payable semiannually in
arrears on March 1 and September 1,
commencing March 1, 2002.
Interest Computation............ Interest on the new notes will be paid on the
basis of a 360-day year comprised of twelve
30-day months.
Ranking......................... The new notes and the subsidiary guarantees
will rank:
. effectively junior to all of our and
the guarantors' existing and future
secured indebtedness, including any
borrowings under our new credit
facility;
. equally with any of our and the
guarantors' existing and future
unsecured senior indebtedness; and
. senior to any of our and the
guarantors' existing and future
subordinated indebtedness.
At June 30, 2001, assuming the merger had
been completed at that time, the new notes
and the guarantees would have effectively
ranked junior to:
. $413.8 million of secured indebtedness
under the new credit facility;
. $55.0 million of secured indebtedness
under the Blanco revolving credit
facility; and
. $825.4 million of additional
borrowings that would have been
available under the new credit
facility after deducting $60.8 million
of outstanding letters of credit. The
new notes are initially being offered
in the principal amount of
$500 million. We may, without the
consent of the holders, increase such
principal amount in the future on the
same terms and conditions and with the
same CUSIP numbers(s) as the notes
being offered hereby.
Optional Redemption.............. We may redeem any of the new notes at any
time at the prices set forth in this
prospectus, plus accrued and unpaid interest
and liquidated damages, if any, to the date
of redemption. See "Description of New Notes
-- Optional Redemption."
Change of Control................ If a change of control occurs we will be
required to make an offer to purchase the new
notes at a purchase price of 101% of the
-9-
principal amount of the new notes on the date
of purchase, plus accrued and unpaid interest
and liquidated damages, if any, to the date
of repurchase. See "Description of New Notes
-- Repurchase at the Option of Holders--
Change of Control."
Subsidiary Guarantees............ The new notes are jointly and severally
guaranteed on an unsecured senior basis by
certain of our existing and future domestic
restricted subsidiaries.
Certain Covenants................ The indenture governing the new notes
contains covenants that, among other things,
limit our ability and the ability of our
restricted subsidiaries to:
. incur additional indebtedness;
. create liens;
. pay dividends or make other equity
distributions;
. purchase or redeem capital stock;
. make investments;
. sell assets or consolidate or merge
with or into other companies; and
. engage in transactions with
affiliates.
These limitations are subject to a number of
important qualifications and exceptions. See
"Description of New Notes--Certain
Covenants."
* * *
Our principal executive offices are located at 1300 Morris Drive, Suite
100, Chesterbrook, Pennsylvania 19087-5594 and our western management center is
located at 4000 Metropolitan Drive, Orange, California 92868-3510. Our
telephone number is (610) 727-7000. Our website is
http://www.amerisourcebergen.net. Any Internet addresses provided in this
prospectus are for information purposes only and are not intended to be
hyperlinks. Accordingly, no information in any of these Internet addresses is
included herein.
Risk Factors
You should carefully consider all of the information in this prospectus.
In particular, you should evaluate the specific risk factors set forth under
"Risk Factors" for a discussion of the material risks involved with an
investment in the notes.
-10-
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
AMERISOURCEBERGEN
The following table summarizes, under the purchase method of accounting,
summary unaudited pro forma consolidated statement of operations data for the
year ended September 30, 2000 and the nine months ended June 30, 2001, as if the
merger between AmeriSource and Bergen and the financings had been completed on
October 1, 1999 and summary unaudited pro forma consolidated balance sheet data
as of June 30, 2001 as if the merger and financings had been completed on that
date. We have included this summary unaudited pro forma consolidated financial
information only for the purposes of illustration, and it does not necessarily
indicate what the operating results or financial position would have been if the
merger between AmeriSource and Bergen and the financings had been completed on
the dates indicated. Moreover, this information does not necessarily indicate
what the future operating results or financial position of AmerisourceBergen
will be. This summary unaudited pro forma consolidated financial data does not
reflect any adjustments to reflect any cost savings or other synergies
anticipated as a result of the merger or any future merger-related expenses.
Year Ended Nine Months Ended
September 30, 2000(a) June 30, 2001(a)
------------------------- --------------------
Statement of Operations Data: (dollars in thousands, except per share amounts)
Revenue:
Operating Revenue............................. $30,335,606 $25,546,626
Bulk deliveries to customers' warehouses...... 4,252,317 3,187,843
----------- -----------
Total revenue................................. 34,587,923 28,734,469
Income from continuing operations............... 145,591 185,778
Earnings per share from continuing
operations--assuming dilution................. 1.43 1.76
Cash dividends declared per share (b)........... $ .10 $ .075
Ratio of earnings to fixed charges (c).......... 2.2x 2.9x
Other Operating Information:
EBITDA(d)....................................... $ 497,382 $ 507,016
Adjusted EBITDA (e)............................. $ 583,911 $ 507,919
Ratio of Adjusted EBITDA to interest
expense and distributions on preferred
securities of subsidiary trust................ 3.2x 3.5x
Capital expenditures (f)........................ $ 85,928 $ 42,208
June 30, 2001
---------------------
(in thousands, except
per share amounts)
Cash and cash equivalents................................................................. $ 155,102
Total assets.............................................................................. 9,523,147
Long-term debt, including current portion of $3,454....................................... 1,906,930
Preferred securities of subsidiary trust holding solely debt securities of Bergen......... 254,400
Total stockholders' equity................................................................ 2,777,579
Book value per share...................................................................... 26.93
__________
(a) Amounts include the effect of AmeriSource's and Bergen's special items as
described in Note 5 of the Notes to Unaudited Pro Forma Consolidated
Condensed Financial Information. The aggregate effect of these items was:
-11-
-- to reduce pro forma consolidated income from continuing operations by
$55.3 million and $0.6 million for the year ended September 30, 2000 and
nine month ended June 30, 2001, respectively; and
-- to reduce pro forma earnings per share from continuing operations--
assuming dilution by $.54 and $.01 for the year ended September 30, 2000
and nine months ended June 30, 2001, respectively.
(b) Pro forma consolidated cash dividends declared per share represent the
combined company's intention to declare and pay a quarterly dividend of
$.025 per share.
(c) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include income (loss) before
taxes and fixed charges (adjusted for interest capitalized during the
period). "Fixed charges" include interest, whether expensed or
capitalized, amortization of deferred financing costs, distributions on
trust preferred securities and the portion of rental expense that is
representative of the interest factor in these rentals.
(d) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because we believe it is frequently used
by securities analysts, investors and other interested parties in the
evaluation of companies in our industry. However, other companies in our
industry may calculate EBITDA differently than we do. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered as an alternative to cash flow from
operating activities or as a measure of liquidity or an alternative to net
income as indicators of our operating performance or any other measures of
performance derived in accordance with generally accepted accounting
principles.
(e) Adjusted EBITDA is calculated by adding to EBITDA certain items of expense
that we believe are not indicative of our future operating performance, as
described in the AmeriSource and Bergen Summary Historical Financial Data.
The following table summarizes the impact of these adjustments to EBITDA
for the periods indicated:
Nine Months
Year Ended Ended
September 30, 2000 June 30, 2001
------------------ ------------------
(in thousands)
EBITDA...................................... $ 497,382 $ 507,016
Adjustments:
Special provisions for doubtful 66,700 ---
receivables............................
Restructuring charge..................... 10,670 ---
Abandonment of capitalized software...... 6,309 ---
Office severance......................... 3,973 ---
Facility consolidations and employee
severance.............................. (1,123) ---
Merger costs............................. --- 903
--------- ---------
Adjusted EBITDA............................. $ 583,911 $ 507,919
========= =========
Adjusted EBITDA represents EBITDA plus the additional adjustments noted in
the table above. Adjusted EBITDA is presented because we believe it is
frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in our industry. However, other
companies in our industry may present Adjusted EBITDA differently than we
do. Adjusted EBITDA is not a measurement of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to cash flow from operating activities or as a measure of
liquidity or an alternative to net income as indicators of our operating
performance or any other measures of performance derived in accordance with
generally accepted accounting principles.
-12-
(f) Capital expenditures represent the historical capital expenditures of
AmeriSource and Bergen for the periods presented.
-13-
SUMMARY HISTORICAL FINANCIAL DATA
AMERISOURCE
The summary historical financial data of AmeriSource has been derived from
the consolidated financial statements and related notes of AmeriSource for each
of the years in the five-year period ended September 30, 2000 and the
consolidated financial statements for the nine months ended June 30, 2001 and
2000. The historical data is only a summary, and you should read it in
conjunction with the historical financial statements and related notes
incorporated by reference in this prospectus.
As of or for the Nine
Months Ended
As of or for the Year Ended September 30, June 30,
--------------------------------------------------------------- -------------------------
1996 1997(a) 1998(b) 1999(c) 2000(d) 2000(d) 2001(e)
----------- ----------- ----------- ----------- ----------- ----------- ------------
(dollars in thousands, except per share amounts)
Statement of Operations Data:
Operating revenue................... $ 5,806,126 $ 8,173,679 $ 9,373,482 $ 9,760,083 $11,609,995 $ 8,582,219 $10,306,288
Bulk deliveries to customers'
warehouses......................... 111,046 124,956 129,555 47,280 35,026 31,072 834
----------- ----------- ----------- ----------- ----------- ----------- ------------
Total revenue....................... 5,917,172 8,298,635 9,503,037 9,807,363 11,645,021 8,613,291 10,307,122
Income before extraordinary items... 43,463 50,123 46,030 70,915 99,014 71,018 89,213
Net income(f)....................... 36,221 48,141 46,030 67,466 99,014 71,018 89,213
Earnings per share-assuming
dilution:
Income before extraordinary
items........................... .90 1.00 .91 1.38 1.90 1.37 1.64
Net income......................... .75 .96 .91 1.31 1.90 1.37 1.64
Balance Sheet Data:
Cash and cash equivalents and
restricted cash.................... 73,832 71,551 90,344 59,497 120,818 36,160 94,298
Total assets........................ 1,236,221 1,798,109 1,726,272 2,060,599 2,458,567 2,402,780 2,887,944
Long-term debt, including
current portion.................... 443,908 602,166 540,327 559,127 413,675 533,382 643,379
Stockholders' equity (deficit)...... $ (34,856) $ 18,881 $ 75,355 $ 166,277 $ 282,294 $ 245,143 $ 402,925
Ratio of earnings to fixed
charges(g)......................... 2.6x 2.7x 2.3x 3.6x 4.3x 4.2x 5.2x
Other Operating Information:
EBITDA(h)........................... $ 109,939 $ 138,211 $ 155,816 $ 176,375 $ 217,666 $ 157,574 $ 190,893
Adjusted EBITDA(i).................. $ 109,939 $ 149,782 $ 182,505 $ 191,267 $ 216,543 $ 156,451 $ 191,796
Ratio of Adjusted EBITDA to
interest expense................... 2.9x 3.5x 3.1x 4.8x 5.2x 5.0x 6.4x
Ratio of total debt to Adjusted
EBITDA............................. 4.0x 4.0x 3.0x 2.9x 1.9x -- --
Capital expenditures................ $ 16,822 $ 16,302 $ 12,101 $ 15,793 $ 16,619 $ 12,360 $ 18,139
__________
(a) Includes $7.1 million of costs related to facility consolidations and
employee severance, net of income tax benefit of $4.5 million.
(b) Includes $11.2 million of merger costs, net of income tax benefit of $7.2
million, and $5.1 million of costs related to facility consolidations and
employee severance, net of income tax benefit of $3.2 million.
(c) Includes $9.3 million of costs related to facility consolidations and
employee severance, net of income tax benefit of $2.4 million, and $2.7
million of merger costs, net of income tax benefit of $0.5 million.
(d) Includes a $0.7 million reversal of costs related to facility
consolidations and employee severance, net of income taxes of $0.4 million.
(e) Includes $0.6 million of merger costs, net of income tax benefit of $0.3
million.
(f) In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
("SFAS No. 141") and SFAS No. 142, "Goodwill and Other Intangible Assets,"
("SFAS No. 142"). SFAS No. 141 applies to all business combinations
completed after June 30, 2001 and requires the use of the purchase method
of accounting. SFAS No. 141 also establishes new criteria for determining
whether intangible assets should be recognized separately
-14-
from goodwill. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001; however, companies with fiscal years beginning after
March 15, 2001 may elect to adopt the statement early. SFAS No. 142
provides that goodwill and intangible assets with indefinite lives will not
be amortized, but rather will be tested for impairment on an annual basis.
SFAS No. 141 is not expected to have a significant impact on the results of
operations or financial position of AmeriSource. While AmeriSource has not
fully evaluated the impact of SFAS 142, adoption of this standard is
expected to result in the elimination of approximately $1.4 million of
amortization expense per year.
(g) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include income before taxes
and fixed charges (adjusted for interest capitalized during the period).
"Fixed charges" include interest, whether expensed or capitalized,
amortization of deferred financing costs and the portion of rental expense
that is representative of the interest factor in these rentals.
(h) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because AmeriSource believes it is
frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in the industry. However, other
companies in the industry may calculate EBITDA differently than AmeriSource
does. EBITDA is not a measurement of financial performance under generally
accepted accounting principles and should not be considered as an
alternative to cash flow from operating activities or as a measure of
liquidity or an alternative to net income as indicators of AmeriSource's
operating performance or any other measures of performance derived in
accordance with generally accepted accounting principles.
(i) Adjusted EBITDA is calculated by adding to or deducting from EBITDA certain
items of expense that AmeriSource believes are not indicative of its future
operating performance.
The following table summarizes the impact of these adjustments to EBITDA:
For the Nine Months
Ended
For the Year Ended September 30, June 30,
--------------------------------------------------------- ----------------------
1996 1997 1998 1999 2000 2000 2001
--------- --------- --------- --------- --------- --------- ----------
(in thousands)
EBITDA.......................... $109,939 $138,211 $155,816 $176,375 $217,666 $157,574 $190,893
Adjustments:
Facility consolidations and
employee severance............ -- 11,571 8,283 11,730 (1,123) (1,123) --
Merger costs................... -- -- 18,406 3,162 -- -- 903
--------- --------- --------- --------- --------- --------- ----------
Adjusted EBITDA................. $109,939 $149,782 $182,505 $191,267 $216,543 $156,451 $191,796
========= ========= ========= ========= ========= ========= ==========
Adjusted EBITDA represents EBITDA plus the additional adjustments noted in
the table above. Adjusted EBITDA is presented because AmeriSource believes
it is frequently used by securities analysts, investors and other
interested parties in the evaluation of companies in the industry.
However, other companies in the industry may present Adjusted EBITDA
differently than AmeriSource does. Adjusted EBITDA is not a measurement of
financial performance under generally accepted accounting principles and
should not be considered as an alternative to cash flow from operating
activities or as a measure of liquidity or an alternative to net income as
indicators of AmeriSource's operating performance or any other measures of
performance derived in accordance with generally accepted accounting
principles. See "Statements of Cash Flows" included in AmeriSource's
financial statements.
-15-
SUMMARY HISTORICAL FINANCIAL DATA
BERGEN
The summary historical financial data of Bergen has been derived from the
consolidated financial statements and related notes of Bergen for each of the
years in the five-year period ended September 30, 2000 and the consolidated
financial statements for the nine months ended June 30, 2001 and 2000. The
historical data is only a summary, and you should read it in conjunction with
the historical financial statements and related notes incorporated by reference
in this prospectus.
As of or for the Nine
Months ended
As of or for the Year Ended September 30, June 30,
--------------------------------------------------------------------- ---------------------
1996 1997(a) 1998(b)(c)(d) 1999(d)(e) 2000(d)(f) 2000 2001
---------- ----------- -------------- ----------- ------------- ---------- ---------
(dollars in thousands, except per share amounts)
Statement of Earnings Data:
Net sales and other revenue:
Excluding bulk shipments to
customers' warehouses................ $ 9,321,645 $10,908,560 $12,943,739 $16,137,864 $18,725,611 $13,888,268 $15,240,338
Bulk shipments to customers'
warehouses........................... 2,476,110 2,837,646 3,401,651 4,056,479 4,217,291 3,109,046 3,187,009
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total net sales and other
revenue.............................. 11,797,755 13,746,206 16,345,390 20,194,343 22,942,902 16,997,314 18,427,347
Earnings (loss) from
continuing operations(g)(h).......... 73,608 81,044 95,247 84,380 (481,026) 64,309 84,717
Earnings (loss) per share from
continuing operations-diluted........ .73 .80 .93 .71 (3.58) .48 .62
Cash dividends declared per
Class A Common share................. .192 .216 .315 .225 .170 .16 .03
Balance Sheet Data:
Cash and cash equivalents............. 21,407 54,493 79,003 116,356 94,032 191,504 60,804
Total assets.......................... 2,426,892 2,637,828 2,929,622 5,399,452 4,571,424 5,355,092 5,010,373
Long-term debt, including current
portion.............................. 398,030 418,177 448,323 1,537,604 1,089,646 1,343,917 1,112,800
Preferred securities of
subsidiary trust holding solely
debt securities of Bergen............ -- -- -- 300,000 300,000 300,000 300,000
Stockholders' equity.................. $ 578,966 $ 644,861 $ 629,064 $ 1,495,490 $ 723,249 $ 1,269,192 $ 809,509
Ratio of earnings to fixed charges(i) 6.1x 6.4x 5.4x 2.9x -- 2.1x 2.1x
Other Operating Information:
EBITDA(j)............................. $ 174,146 $ 190,378 $ 220,653 $ 266,332 $ (226,902) $ 279,366 $ 315,561
Adjusted EBITDA(k).................... $ 174,146 $ 196,178 $ 240,595 $ 312,332 $ 366,050 $ 279,366 $ 315,561
Ratio of Adjusted EBITDA to
interest expense..................... 8.8x 9.5x 8.1x 4.6x 2.7x 2.8x 2.6x
Ratio of total debt(1) to
Adjusted EBITDA...................... 2.3x 2.1x 1.9x 4.9x 3.4x -- --
Capital expenditures.................. $ 15,107 $ 17,957 $ 20,835 $ 40,918 $ 69,309 $ 61,095 $ 24,069
___________
(a) Includes special charges for merger expenses of $3.4 million, net of income
tax benefit of $2.4 million, relating to the termination of a previously
proposed merger.
(b) Includes special charges for merger expenses of $8.6 million, net of income
tax benefit of $6.0 million, primarily relating to the termination of a
previously proposed merger; and abandonment of capitalized software of $3.2
million, net of income tax benefit of $2.1 million.
(c) Includes a cash dividend of $0.075 per share declared September 24, 1998
and paid December 1, 1998.
(d) For information regarding business acquisitions and dispositions during
these fiscal years, see Item 7 of Bergen's Form 10-K for the fiscal year
ended September 30, 2000.
-16-
(e) Includes a special provision for doubtful receivables of $27.8 million, net
of income tax benefit of $18.2 million.
(f) Includes special charges for goodwill impairment of $505.3 million, no
income tax effect; provision for doubtful receivables associated with two
customers of $40.4 million, net of income tax benefit of $26.3 million;
restructuring charge of $6.4 million, net of income tax benefit of $4.3
million; abandonment of capitalized software of $3.8 million, net of income
tax benefit of $2.5 million; officer severance of $2.4 million, net of
income tax benefit of $1.6 million and impairment of investment of $3.0
million, net of income tax benefit of $2.0 million.
(g) The following table summarizes the special charges described in notes (a),
(b), (e) and (f) above:
For the Year Ended September 30,
----------------------------------------------------------------------------------------
1997 1998 1999 2000
------------------- ------------------- ------------------- -------------------
(in thousands)
Goodwill impairment $ -- $ -- $ -- $ (505,300)
Special provision for doubtful
receivables..................... -- -- (46,000) (66,700)
Restructuring charge............. -- -- -- (10,670)
Abandonment of capital software -- (5,307) -- (6,309)
Impairment of investment......... -- -- -- (5,000)
Officer severance................ -- -- -- (3,973)
Merger-related expenses.......... (5,800) (14,635) -- --
---------------- ---------------- ---------------- ----------------
Total pre-tax effect............. (5,800) (19,942) (46,000) (597,592)
Income tax benefit............... 2,378 8,178 18,170 36,598
---------------- ---------------- ---------------- ----------------
Effect on earnings from
continuing operations........... $ (3,422) $ (11,764) $ (27,830) $ (561,354)
================ ================ ================ ================
(h) In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
and SFAS No. 142. SFAS No. 141 applies to all business combinations
completed after June 30, 2001 and requires the use of the purchase method
of accounting. SFAS No. 141 also establishes new criteria for determining
whether intangible assets should be recognized separately from goodwill.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001; however, companies with fiscal years beginning after March 15, 2001
may elect to adopt the statement early. SFAS No. 142 provides that goodwill
and intangible assets with indefinite lives will not be amortized, but
rather will be tested for impairment on an annual basis. SFAS No. 141 is
not expected to have a significant impact on the results of operations or
financial position of Bergen. While Bergen has not fully evaluated all the
provisions of SFAS No. 142, it would be expected to eliminate the ongoing
amortization of goodwill. During the year ended September 30, 2000, the
amortization of goodwill was approximately $31.7 million.
(i) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include income (loss) before
taxes and fixed charges (adjusted for interest capitalized during the
period). "Fixed charges" include interest, whether expensed or
capitalized, amortization of deferred financing costs, distributions on
trust preferred securities and the portion of rental expense that is
representative of the interest factor in these rentals. For the year ended
September 30, 2000, earnings before fixed charges were insufficient to
cover fixed charges by approximately $451.2 million.
(j) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because Bergen believes it is frequently
used by securities analysts, investors and other interested parties in the
evaluation of companies in the industry. However, other companies in the
industry may calculate EBITDA differently than Bergen does. EBITDA is not
a measurement of financial performance under generally accepted accounting
principles and should not be considered as an alternative to cash flow from
operating activities or as a measure of liquidity or an alternative to net
income as indicators of Bergen's operating performance or any other
measures of performance derived in accordance with generally accepted
accounting principles.
-17-
(k) Adjusted EBITDA is calculated by adding to EBITDA certain items of expense
that Bergen believes are not indicative of our future operating performance
as set forth in notes (a), (b), (e) and (f) above.
The following table summarizes the impact of these adjustments to EBITDA
for the periods indicated:
For the Nine Months
For the Year Ended September 30, Ended June 30,
-------------------------------------------------------------- -----------------------
1996 1997 1998 1999 2000 2000 2001
---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands)
EBITDA.......................... $ 174,146 $ 190,378 $ 220,653 $ 266,332 $ (226,902) $ 279,366 $ 315,561
Adjustments:
Goodwill impairment............ -- -- -- -- 505,300 -- --
Special provision for doubtful
receivables................... -- -- -- 46,000 66,700 -- --
Restructuring charge........... -- -- -- -- 10,670 -- --
Abandonment of capitalized
software...................... -- -- 5,307 -- 6,309 -- --
Officer severance.............. -- -- -- -- 3,973 -- --
Merger-related expenses........ -- 5,800 14,635 -- -- -- --
--------- --------- ---------- ---------- ---------- ---------- ----------
Adjusted EBITDA................. $ 174,146 $ 196,178 $ 240,595 $ 312,332 $ 366,050 $ 279,366 $ 315,561
========= ========= ========== ========== ========== ========== ==========
Adjusted EBITDA represents EBITDA plus the additional adjustments noted in
the table above. Adjusted EBITDA is presented because Bergen believes it
is frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in the industry. However, other
companies in the industry may present Adjusted EBITDA differently than
Bergen does. Adjusted EBITDA is not a measurement of financial performance
under generally accepted accounting principles and should not be considered
as an alternative to cash flow from operating activities or as a measure of
liquidity or an alternative to net income as indicators of Bergen's
operating performance or any other measures of performance derived in
accordance with generally accepted accounting principles.
(l) Total debt excludes preferred securities of subsidiary trust holding solely
debt securities of Bergen and includes Bergen's asset securitization
facility.
-18-
RISK FACTORS
You should consider carefully the following risk factors, in addition to
the other information set forth in this prospectus, before making an investment
decision.
Risks Related to the Notes
Our substantial indebtedness could adversely affect our financial health
and adversely impact our ability to repay the notes.
We are highly leveraged. On June 30, 2001, after giving pro forma effect to
the sale of the old notes, we would have had total indebtedness of approximately
$1.9 billion (of which $500 million would have consisted of the notes and $414
million would have consisted of secured borrowings under our new credit
facility) and stockholders' equity of approximately $2.8 billion. Also after
giving pro forma effect to the sale of the old notes, our pro forma ratio of
earnings to fixed charges would have been 2.2 to 1 for the fiscal year ended
September 30, 2000, and 2.9 to 1 for the nine months ended June 30, 2001. We and
our subsidiaries will be permitted to incur substantial additional indebtedness
in the future. See "Summary Unaudited Pro Forma Consolidated Financial Data" and
"Description of Notes."
Our substantial indebtedness could have important consequences to you. For
example, it could:
. make it more difficult for us to satisfy our obligations with respect to
the notes;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to obtain additional financing to fund future working
capital, capital expenditures, and other general corporate requirements,
or to carry out other aspects of our business plan;
. require us to dedicate a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of such cash flow to
fund working capital, capital expenditures, or other general corporate
purposes, or to carry out other aspects of our business plan;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and
. place us at a competitive disadvantage compared to our competitors that
have less debt.
In addition, the indenture and our new credit facility contain financial
and other restrictive covenants that limit our ability to engage in activities
that may be in our long-term best interest. Our failure to comply with those
covenants could result in an event of default which, if not cured or waived,
could result in the acceleration of all of our debts.
To service our indebtedness, we will require a significant amount of cash.
Our ability to generate cash depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, including
these notes, and to fund planned capital expenditures and efforts will depend on
our ability to generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe that cash flow from operations and available
cash, together with available borrowings under our new credit facility, will be
adequate to meet our future liquidity needs for at least the next few years. We
may, however, need to refinance all or a portion of the principal amount of the
notes on or prior to maturity.
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We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that anticipated revenue growth and operating
improvements will be realized or that future borrowings will be available under
our new credit facility in an amount sufficient to enable us to service our
indebtedness, including these notes, or to fund our other liquidity needs. In
addition, we cannot assure you that we will be able to refinance any of our
indebtedness, including our new credit facility and these notes, on commercially
reasonable terms or at all.
Your right to receive payments on the new notes, like the old notes, is
effectively subordinated to our and the subsidiary guarantors' existing and
future secured indebtedness.
The new notes, like the old notes, are unsecured and therefore will be
effectively subordinated in right of payment to all of our and the subsidiary
guarantors' current and future secured indebtedness, as well as all of the non-
guarantors' indebtedness.
Upon any distribution to our creditors or the creditors of the guarantors
in a bankruptcy, liquidation or reorganization or similar proceeding relating to
us or the guarantors or our or their property, the holders of our secured
indebtedness or the secured indebtedness of the guarantors will be entitled to
be paid in full from the proceeds of their collateral before any such proceeds
may be distributed to the holders of these notes. As a result, our secured
creditors will likely recover more in a bankruptcy or similar proceeding than
the holders of these notes.
As of June 30, 2001, on a pro forma adjusted basis after giving effect to
the offering of the old notes, the aggregate amount of our secured indebtedness
and the secured indebtedness of our subsidiaries would have been approximately
$468.8 million, and approximately $825.4 million would have been available for
additional borrowing under our new credit facility after giving effect to the
letters of credit of $60.8 million. We will be permitted to borrow substantial
additional indebtedness, including secured indebtedness, in the future under the
terms of the indenture. See "Description of Other Debt" and "The New Credit
Facility."
Not all of our subsidiaries will guarantee these notes.
Certain of our subsidiaries will not guarantee these notes. Additionally,
under the terms of the indenture, we may, under certain circumstances, designate
additional subsidiaries as unrestricted subsidiaries and/or as designated non-
guarantors. In the event of a bankruptcy, liquidation or reorganization of any
of these non-guarantor subsidiaries, holders of their indebtedness and their
trade creditors will generally be entitled to payment of their claims from the
assets of those subsidiaries before any assets are made available for
distribution to us. Assuming we had completed the offering of the old notes on
June 30, 2001, the notes would have been effectively subordinated to $55.0
million of indebtedness and other liabilities (including trade payables) of
these non-guarantor subsidiaries. The non-guarantor subsidiaries generated less
than 1.0% of our pro forma operating revenue for the nine-month period ended
June 30, 2001.
We may not have the ability to raise the funds necessary to finance the
change of control offer required by the indenture.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes at 101% of the
principal amount thereof plus accrued and unpaid interest and liquidated
damages, if any, to the date of repurchase. However, it is possible that we
will not have sufficient funds at the time of the change of control to make any
required repurchases of notes or that restrictions in our new credit facility
will not allow such repurchases. Certain important corporate events, such as
leveraged recapitalizations that would increase the level of our indebtedness,
would not constitute a "Change of Control" under the indenture. See
"Description of Notes--Repurchase at the Option of Holders."
-20-
Federal and state statutes allow courts, under specific circumstances, to
void guarantees and require noteholders to return payments received from
guarantors.
Under the federal bankruptcy law or comparable provisions of state
fraudulent transfer laws, a note or guarantee could be voided, or claims in
respect of a note or guarantee could be subordinated to all other debts of us or
that of the guarantor, as the case may be, if, among other things, we or the
guarantor, at the time it incurred the indebtedness evidenced by the note or the
guarantee:
. received less than reasonably equivalent value or fair consideration for
the incurrence of such indebtedness; and
. was insolvent or rendered insolvent by reason of such incurrence; or
. was engaged in a business or transaction for which our or the
guarantor's remaining assets constituted unreasonably small capital; or
. intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment made by us pursuant to these notes or by a guarantor
pursuant to a subsidiary guarantee could be voided and required to be returned
to the person making such payment, or to a fund for the benefit of our creditors
or the guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, we or a guarantor would be considered insolvent
if:
. the sum of its debts, including contingent liabilities, were greater
than the saleable value of all of its assets; or
. the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
. it could not pay its debts as they become due.
There is no public trading market for the new notes and an active trading
market may not develop for the new notes.
The old notes are currently eligible for trading in the PORTAL Market, a
screen-based market operated by the National Association of Securities Dealers.
The PORTAL Market is limited to qualified institutional investors as defined by
Rule 144A of the Securities Act. The new notes will not be eligible for trading
on the PORTAL Market. The new notes are new securities for which there is no
established trading market. We do not intend to apply for listing or quotation
of the new notes on any securities exchange or stock market.
Credit Suisse First Boston, Banc of America Securities LLC and JP Morgan
acted as initial purchasers in connection with the offer and sale of the old
notes. The initial purchasers have informed us that they intend to make a
market in the new notes. However, these initial purchasers may cease their
market-making at any time. In addition, the liquidity of the trading market in
the new notes, and the market price quoted for the new notes, may be adversely
affected by changes in the overall market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, we cannot assure you that an
active trading market will develop for the new notes.
Failure to tender your old notes for new notes could limit your ability to
resell the old notes.
The old notes were not registered under the Securities Act or under the
securities laws of any state and may not be resold, offered for resale or
otherwise transferred unless they are subsequently registered or resold under an
exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your old notes for new
notes under the exchange offer, you will not be able to resell, offer to resell
or
-21-
otherwise transfer the old notes unless they are registered under the Securities
Act or unless you resell them, offer to resell or otherwise transfer them under
an exemption from the registration requirements of, or in a transaction not
subject to, the Securities Act. In addition, we will no longer be under an
obligation to register the old notes under the Securities Act except in the
limited circumstances provided under the registration rights agreement. In
addition, if you want to exchange your old notes in the exchange offer for the
purpose of participating in a distribution of the new notes, you may be deemed
to have received restricted securities, and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction.
Risks Related to Our Business
AmerisourceBergen may not realize all of the anticipated benefits of the
merger.
The success of the merger will depend in part on our ability to realize the
anticipated synergies of $150 million per year by the end of the third year of
the existence of AmerisourceBergen and growth opportunities from integrating the
businesses of AmeriSource and Bergen. Our success in realizing these synergies,
cost savings and growth opportunities, and the timing of this realization,
depends on the successful integration of AmeriSource's and Bergen's operations.
Even if we are able to integrate the business operations of AmeriSource and
Bergen successfully, we cannot assure you that this integration will result in
the realization of the full benefits of the synergies, cost savings and growth
opportunities that we currently expect to result from this integration or that
these benefits will be achieved within the anticipated time frame. For example,
the elimination of duplicative costs may not be possible or may take longer than
anticipated and the benefits from the merger may be offset by costs incurred in
integrating the companies.
Intense competition may erode our profit margins.
The wholesale distribution of pharmaceuticals and related healthcare
services is highly competitive. We compete primarily with the following:
. national wholesale distributors of pharmaceuticals such as Cardinal
Health, Inc. and McKesson Corporation;
. regional and local distributors of pharmaceuticals;
. chain drugstores that warehouse their own pharmaceuticals;
. manufacturers who distribute their products directly to customers; and
. other specialty distributors.
Some of our competitors have greater financial resources than we have.
Competitive pressures have contributed to a decline in our predecessors'
pharmaceutical wholesale drug distribution gross profit margins on operating
revenue from 5.2% in fiscal 1996 to 4.3% in fiscal 2000 on a combined basis.
This trend may continue and our business could be adversely affected as a
result.
PharMerica faces competitive pressure from other market participants that
are significantly larger than it is and that have significantly greater
financial resources than it does. These competitive pressures could lead to a
decline in gross profit margins for PharMerica in the future. In addition,
there are relatively few barriers to entry in the local markets served by
PharMerica, and PharMerica may encounter substantial competition from new local
market entrants. These factors could adversely affect PharMerica's business in
the future.
The changing United States healthcare environment may impact our revenue and
income.
Our products and services are intended to function within the structure of
the healthcare financing and reimbursement system currently existing in the
United States. In recent years, the healthcare industry has undergone
significant changes in an effort to reduce costs and government spending. These
changes include an increased reliance on managed care, cuts in Medicare funding
affecting our healthcare provider customer base, consolidation of competitors,
suppliers and customers, and the development of large, sophisticated purchasing
groups. We expect the healthcare industry to continue to change significantly
in the future. Some of these potential changes, such as a reduction in
governmental support of healthcare services or adverse changes in legislation or
regulations governing
-22-
prescription drug pricing, healthcare services or mandated benefits, may cause
healthcare industry participants to greatly reduce the amount of our products
and services they purchase or the price they are willing to pay for our products
and services. Changes in pharmaceutical manufacturers' pricing or distribution
policies could also significantly reduce our income.
Our operating revenue and profitability may suffer upon our loss of, or the
bankruptcy or insolvency of, a significant customer.
During the fiscal year ended September 30, 2000 and the nine-month period
ended June 30, 2001, sales to the Veterans Administration accounted for 7.3% of
our pro forma operating revenue. In addition, we have contracts with group
purchasing organizations ("GPOs") which represent a concentration of buying
power among multiple healthcare providers. While we believe the risk of default
by a federal government agency is minimal and the credit risk with a GPO
contract is spread among the members of the GPO that purchase products from the
Company, loss of a major federal government customer or GPO could lead to a
significant reduction in revenue. We otherwise have no individual customer that
accounted for more than 4.3% of our pro forma fiscal 2000 operating revenue.
Failure in our information technology systems could significantly disrupt our
operations, which could reduce our customer base and result in lost revenue.
Our success depends, in part, on the continued and uninterrupted
performance of our information technology, or IT, systems. Our computer systems
are vulnerable to damage from a variety of sources, including telecommunications
failures, malicious human acts and natural disasters. Moreover, despite network
security measures, some of our servers are potentially vulnerable to physical or
electronic break-ins, computer viruses and similar disruptive problems. Despite
the precautions we have taken, unanticipated problems affecting our systems
could cause failures in our IT systems. Sustained or repeated system failures
that interrupt our ability to process test orders, deliver test results or
perform tests in a timely manner would adversely affect our reputation and
result in a loss of customers and net revenue.
In addition, the wholesale drug distribution businesses of AmeriSource and
Bergen were based on different IT systems. We are in the process of evaluating
the differing systems and intend to use a common IT system in the future. This
process is complex and will take several years to complete. During systems
conversions of this type, workflow may be temporarily interrupted, which may
cause interruptions in customer service. In addition, the implementation
process, including the transfer of databases and master files to new data
centers, presents significant conversion risks which could cause failures in our
IT systems and disrupt our operations.
Our operations may suffer if government regulations regarding pharmaceuticals
change.
The healthcare industry is highly regulated at the local, state and federal
level. Consequently, we are subject to the risk of changes in various local,
state, federal and international laws, which include the operating and security
standards of the United States Drug Enforcement Administration, or DEA, the Food
and Drug Administration, or FDA, various state boards of pharmacy and comparable
agencies. These changes may affect our operations, including distribution of
prescription pharmaceuticals (including certain controlled substances),
operation of pharmacies and packaging of pharmaceuticals. A review of our
business by regulatory authorities may result in determinations that could
adversely affect the operations of the business.
If we fail to comply with extensive laws and regulations in respect of
healthcare fraud, we could suffer penalties or be required to make significant
changes to our operations.
We are subject to extensive and frequently changing local, state and
federal laws and regulations relating to healthcare fraud. The federal
government continues to strengthen its position and scrutiny over practices
involving healthcare fraud affecting the Medicare, Medicaid and other government
healthcare programs. Contractual relationships with pharmaceutical
manufacturers and healthcare providers subject our business to provisions of the
federal Social Security Act which, among other things, (i) preclude persons from
soliciting, offering, receiving or paying any remuneration in order to induce
the referral of a patient for treatment or for inducing the ordering or
purchasing of items or services that are in any way paid for by Medicare,
Medicaid or other government-sponsored healthcare programs and (ii) impose a
number of restrictions upon referring physicians and providers of designated
health services under Medicare and Medicaid programs. Legislative provisions
relating to healthcare fraud and
-23-
abuse give federal enforcement personnel substantially increased funding, powers
and remedies to pursue suspected fraud and abuse. While we believe that we are
in material compliance with all applicable laws, many of the regulations
applicable to us, including those relating to marketing incentives offered by
pharmaceutical suppliers, are vague or indefinite and have not been interpreted
by the courts. They may be interpreted or applied by a prosecutorial, regulatory
or judicial authority in a manner that could require us to make changes in our
operations. If we fail to comply with applicable laws and regulations, we could
suffer civil and criminal penalties, including the loss of licenses or our
ability to participate in Medicare, Medicaid and other federal and state
healthcare programs.
If key managers leave the Company, our operating results may be adversely
affected.
We depend on our senior management. If some of these employees leave us,
operating results could be adversely affected. We cannot be assured that we
will be able to retain these or any other key employees.
Federal and state laws that protect patient health information may increase
our costs and limit our ability to collect and use that information.
Our activities subject us to numerous federal and state laws and
regulations governing the collection, dissemination, use, security and
confidentiality of patient-identifiable health information, including the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA,
and related rules and regulations, or Privacy Laws. For example, as part of
PharMerica's pharmaceutical dispensing, medical record keeping, third party
billing and other services, we collect and maintain patient-identifiable health
information, which activities may trigger certain requirements under the Privacy
Laws. The costs associated with our efforts to comply with the Privacy Laws
could be substantial. Moreover, if we fail to comply with certain Privacy Laws,
we could suffer civil and criminal penalties. We can provide no assurance that
the costs incurred in complying or penalties we may incur for failure to comply
with the Privacy Laws will not have a material effect on us.
Our growth may be limited if we are not able to implement our acquisition
strategy.
Since 1995, and prior to the merger of AmeriSource and Bergen, each of
AmeriSource and Bergen completed several acquisitions. Through these
acquisitions and other investments, AmeriSource and Bergen expanded their
respective geographic presence and breadth of service offerings. We expect to
continue to acquire companies as an element of our growth strategy. However, we
are not currently engaged in substantive negotiations for material acquisitions.
We may not, however, be able to identify suitable acquisition candidates or to
complete acquisitions on favorable terms. We also may not be able to
successfully integrate acquired businesses in a timely or efficient manner.
-24-
MERGER AND RELATED TRANSACTIONS
On March 16, 2001, AmeriSource and Bergen entered into an Agreement and
Plan of Merger, pursuant to which AmeriSource and Bergen would be combined in a
merger-of-equals to form AmerisourceBergen. To accomplish the combination of
their businesses, AmeriSource and Bergen jointly formed a new company. The
merger occurred on August 29, 2001.
Before the merger, the organization of the companies was:
[FLOW CHART]
Following the merger, the organization of the companies is:
[FLOW CHART]
We believe that the combined strengths of AmeriSource and Bergen will
enable us to achieve significant operating efficiencies and produce substantial
benefits for our customers and stockholders. By combining the companies,
AmerisourceBergen will create the potential for stronger operating results and a
stronger financial condition than either company could have achieved on its own.
We refinanced the former senior secured credit facilities of AmeriSource
and Bergen, which had outstanding balances of $80.9 million and $469.6 million,
respectively, at June 30, 2001. The former credit facilities
-25-
and the PharMerica bonds described below were refinanced with the proceeds of
the offering of the old notes together with borrowings under our new credit
facility with a syndicate of banks led by The Chase Manhattan Bank, an affiliate
of J.P. Morgan Securities Inc., and Bank of America, N.A., an affiliate of Banc
of America Securities LLC. The new credit facility provides aggregate
commitments of $1.3 billion, of which $1.0 billion consists of revolving loan
commitments and $300.0 million consists of term loan commitments. We commenced a
change of control offer with respect to Bergen's $20.6 million aggregate
principal amount of 7% convertible subordinated debentures due 2006 originally
issued by Durr-Fillauer Medical, Inc., a subsidiary of Bergen, and with respect
to the PharMerica notes that remain outstanding following the completion of the
tender offer, pursuant to the terms of the applicable indentures.
On July 17, 2001, PharMerica commenced a tender offer to repurchase any or
all of its outstanding 8 3/8% Senior Subordinated Notes. Approximately $184.6
million of the PharMerica notes were tendered. The remaining $123.5 million of
PharMerica notes may be tendered pursuant to the change of control offer
described below. In connection with the tender offer, PharMerica successfully
solicited consents from the holders of the PharMerica notes to eliminate
substantially all of the restrictive covenants in the indenture relating to such
notes, including a covenant restricting PharMerica's ability to guarantee the
notes offered hereby. The obligation of PharMerica to purchase notes in the
tender offer was conditioned upon, among other things, (i) the consummation of
the merger and (ii) the consummation of the offering of the old notes. The
offering of the old notes was not conditioned upon consummation of the tender
offer, but the release of the escrowed funds from the offering of the old notes
was conditioned upon PharMerica and certain of our subsidiaries becoming a
guarantor of the old and the new notes. We were required to make a change of
control offer to holders of the PharMerica notes not tendered in the tender
offer at a redemption price equal to 101% of the principal amount thereof plus
accrued and unpaid interest to the date of redemption.
Cash funding requirements to consummate these transactions on a pro-forma
basis as of June 30, 2001, plus the estimated costs associated with the merger
and the financings, were $913.8 million, which were provided by: (i) $413.8
million of borrowings under the new credit facility, of which $113.8 million
consisted of revolving credit borrowings and $300.0 million consisted of term
loans and (ii) $500.0 million of gross proceeds from the issuance of the old
notes.
-26-
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the new notes, we will receive in exchange old notes of like
principal amount, the terms of which are identical in all material respects to
the new notes. The old notes surrendered in exchange for new notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the new
notes will not result in any increase in our indebtedness. We have agreed to
bear the expenses of the exchange offer. No underwriter is being used in
connection with the exchange offer.
The net proceeds from the sale of the old notes were approximately $489
million. We used the net proceeds from the sale of the old notes to refinance
a portion of AmeriSource's and Bergen's then outstanding bank debt and to pay
merger related costs.
RATIO OF EARNINGS TO FIXED CHARGES
The following table summarizes the ratios of earnings to fixed charges for
AmerisourceBergen which were calculated using summary unaudited pro forma
consolidated statement of operations data for the year ended September 30, 2000,
and the nine months ended June 30, 2001. The summary unaudited pro forma
consolidated statement of operations data used in the calculations were prepared
under the purchase method of accounting as if the merger between Amerisource and
Bergen and the related financing transactions had been completed on October 1,
1999. We have included this information only for purposes of illustration, and
it does not necessarily indicate what the ratios of earnings to fixed charges
would have been if the merger and the related financing transactions had been
completed on October 1, 1999. Moreover, this information does not necessarily
indicate what the future ratios of earnings to fixed charges will be. You should
read this table in conjunction with the "AmerisourceBergen Corporation Unaudited
Pro Forma Consolidated Condensed Financial Information" included herein.
Year Ended Nine Months Ended
September 30, 2000 June 30, 2001
------------------ -----------------
Ratio of earnings to fixed charges.... 2.2x 2.9x
The above ratios of earnings to fixed charges have been computed by
dividing our earnings from continuing operations before income taxes,
distribution on preferred securities of subsidiary trust and fixed charges, by
the fixed charges. For purposes of these ratios, fixed charges consist of
interest, whether expensed or capitalized, amortization of deferred financing
costs, distributions on preferred trust securities and the portion of rent
expense representative of interest.
-27-
AMERISOURCEBERGEN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma consolidated condensed financial
statements are presented to illustrate the effects of the merger and the
financings on the historical financial position and results of operations of
AmeriSource and Bergen, using the assumptions set forth below. Such information
is not necessarily indicative of the financial position or results of operations
of AmerisourceBergen that would have occurred if the merger and the financings
had been consummated as of the dates indicated, nor should it be construed as
being a representation of the future financial position or results of operations
of AmerisourceBergen.
Management expects that the benefits of the merger will include synergies
to the combined entity resulting from, among other things, the consolidation of
distribution facilities and related working capital improvements, the
elimination of duplicate administrative functions and generic inventory
purchasing efficiencies. These synergies are estimated at $150 million per year
by the end of the third year following the merger. However, such synergies will
be partially offset by merger-related integration expenses. The accompanying pro
forma financial information does not include any adjustments to reflect these
anticipated merger-related synergies or expenses.
The unaudited pro forma information has been derived in part from, and
should be read in conjunction with, the historical audited and unaudited
consolidated financial statements and related notes of AmeriSource and Bergen
incorporated by reference in this prospectus.
The unaudited pro forma consolidated condensed balance sheet of
AmerisourceBergen at June 30, 2001 assumes that the merger and the financings
took place on that date. The unaudited pro forma consolidated condensed
statements of operations of AmerisourceBergen for the year ended September 30,
2000 and the nine months ended June 30, 2001 assume that the merger and the
financings took place on October 1, 1999.
Both AmeriSource and Bergen have a fiscal year ending September 30;
therefore, the accompanying pro forma operating results represent the full
fiscal 2000 and the first nine months of fiscal 2001 for each entity,
respectively.
In July 2001, the Financial Accounting Standards Board issued Statement No.
141 entitled "Business Combinations" and Statement No. 142 entitled "Goodwill
and Other Intangible Assets". Accordingly, the following unaudited pro forma
consolidated condensed statements of operations have been prepared under the
rules set forth in the two new Statements.
-28-
AMERISOURCEBERGEN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
As of June 30, 2001
(in thousands)
Amerisource
Pro Forma Bergen
AmeriSource Bergen Adjustments Pro Forma
------------ ---------- ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents........................ $ 94,298 $ 60,804 $ - $ 155,102
Accounts receivable, less allowance for doubtful
accounts........................................ 677,180 1,178,159 - 1,855,339
Merchandise inventories.......................... 1,955,385 2,619,495 166,450 (a) 4,741,330
Income taxes receivable.......................... - 3,456 (3,456) (b) -
Deferred income taxes............................ - 9,595 (9,595) (c) -
Prepaid expenses and other....................... 4,266 21,031 - 25,297
------------ ---------- ------------ -------------
Total current assets........................... 2,731,129 3,892,540 153,399 6,777,068
Property and equipment, net........................ 71,009 195,581 30,000 (d) 296,590
Other assets:
Goodwill, net.................................... 40,584 663,268 (663,268) (e) 2,250,332
2,209,748 (f)
Deferred income taxes............................ - 19,937 8,634 (c) 28,571
Deferred charges and other assets................ 45,222 136,577 1,000 (g) 170,586
(12,213) (h)
------------ ---------- ------------ -------------
Total other assets............................. 85,806 819,782 1,543,901 2,449,489
------------ ---------- ------------ -------------
TOTAL ASSETS....................................... $2,887,944 $4,907,903 $1,727,300 $9,523,147
============ ========== ============ =============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable................................. $1,639,876 $2,428,002 $ - $4,067,878
Accrued expenses and other....................... 56,704 287,970 (53,326) (h) 291,348
Accrued income taxes............................. 20,163 - (3,456) (b) 16,707
Deferred income taxes............................ 117,092 - 46,985 (c) 164,077
------------ ---------- ------------ -------------
Total current liabilities...................... 1,833,835 2,715,972 (9,797) 4,540,010
Long-term debt, less current portion............... 640,934 1,058,465 (7,305) (i) 1,903,476
211,382 (h)
Other liabilities.................................. 10,250 23,957 13,475 (j) 47,682
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
debt securities of Bergen......................... - 300,000 (45,600) (k) 254,400
Stockholders' equity:
Common stock..................................... 596 207,506 (207,506) (l) 1,031
435 (m)
Capital in excess of par value................... 314,954 824,131 (824,131) (l) 2,683,143
2,368,189 (m)
Accumulated other comprehensive income........... - 15 (15) (l) -
Retained earnings (accumulated deficit).......... 93,595 (199,091) 199,091 (l) 93,405
(190) (l)
Cost of common stock in treasury................. (6,220) (23,052) 29,272 (l) -
------------ ---------- ------------ -------------
Total stockholders' equity..................... 402,925 809,509 1,565,145 2,777,579
------------ ---------- ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $2,887,944 $4,907,903 $1,727,300 $9,523,147
============ ========== ============ =============
See accompanying Notes to Unaudited Pro Forma Consolidated Condensed Financial
Information.
-29-
AMERISOURCEBERGEN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended September 30, 2000
(in thousands, except per share data)
Amerisource
Pro Forma Bergen
AmeriSource Bergen Adjustments Pro Forma
------------ ---------- ------------- -------------
Operating revenue.................................. $11,609,995 $18,725,611 $ - $30,335,606
Bulk deliveries to customers' warehouses........... 35,026 4,217,291 - 4,252,317
----------- ----------- --------- -----------
Total revenue...................................... 11,645,021 22,942,902 - 34,587,923
Cost of goods sold................................. 11,125,440 21,703,755 - 32,829,195
----------- ----------- --------- -----------
Gross profit....................................... 519,581 1,239,147 - 1,758,728
Distribution, selling and administrative........... 292,196 796,491 (750)(a) 1,087,937
Provision for doubtful receivables................. 10,274 143,306 153,580
Depreciation....................................... 14,129 45,594 4,267 (b) 63,990
Amortization....................................... 1,980 37,104 (31,680)(c) 7,404
Special charges.................................... (1,123) 526,252 (505,300)(d) 19,829
----------- ----------- --------- -----------
Operating income (loss) from continuing
operations........................................ 202,125 (309,600) 533,463 425,988
Impairment of investment and other................. 568 5,000 - 5,568
Interest expense................................... 41,857 112,016 1,595 (e) 158,157
2,689 (f)
----------- ----------- --------- -----------
Income (loss) from continuing operations before
taxes and distributions on preferred securities
of subsidiary trust............................... 159,700 (426,616) 529,179 262,263
Taxes on income from continuing operations......... 60,686 40,306 882 (g) 101,874
----------- ----------- --------- -----------
Income (loss) from continuing operations
before distributions on preferred securities of
subsidiary trust.................................. 99,014 (466,922) 528,297 160,389
Distributions on preferred securities of
subsidiary trust, net of income tax benefit....... - (14,104) (694)(h) (14,798)
----------- ----------- --------- -----------
Income (loss) from continuing operations........... $ 99,014 $ (481,026) $ 527,603 $ 145,591
=========== =========== ========= ===========
Earnings (loss) per share from continuing
operations:
Basic............................................ $ 1.92 $ (3.58) $ 1.44
Assuming dilution................................ $ 1.90 $ (3.58) $ 1.43
Weighted average common shares outstanding:
Basic............................................ 51,552 134,504 (84,738) 101,318
Assuming dilution................................ 52,020 134,504 (84,666) 101,858
See accompanying Notes to Unaudited Pro Forma Consolidated Condensed Financial
Information.
-30-
AMERISOURCEBERGEN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Nine Months Ended June 30, 2001
(in thousands, except per share data)
Amerisource
Pro Forma Bergen
AmeriSource Bergen Adjustments Pro Forma
---------------- --------------- ----------- -----------------
Operating revenue................................... $10,306,288 $15,240,338 $ -- $ 25,546,626
Bulk deliveries to customers' warehouses............ 834 3,187,009 -- 3,187,843
----------- ----------- ----------- --------------
Total revenue....................................... 10,307,122 18,427,347 -- 28,734,469
Cost of goods sold.................................. 9,873,581 17,462,795 -- 27,336,376
----------- ----------- ----------- --------------
Gross profit........................................ 433,541 964,552 -- 1,398,093
Distribution, selling and administrative............ 230,591 612,106 (562) (a) 842,135
Provision for doubtful receivables.................. 11,154 36,885 -- 48,039
Depreciation........................................ 10,722 33,866 3,200 (b) 47,788
Amortization........................................ 1,658 17,407 (13,992) (c) 5,073
Merger costs........................................ 903 -- -- 903
----------- ----------- ----------- --------------
Operating income.................................... 178,513 264,288 11,354 454,155
Equity in net loss of unconsolidated affiliate...... 4,581 -- -- 4,581
Interest expense.................................... 30,030 101,674 1,196 (e) 126,767
(6,133) (f)
----------- ----------- ----------- --------------
Income before taxes and distributions on preferred
securities of subsidiary trust..................... 143,902 162,614 16,291 322,807
Taxes on income..................................... 54,689 67,319 3,923 (g) 125,931
----------- ----------- ----------- --------------
Income before distributions on preferred
securities of subsidiary trust..................... 89,213 95,295 12,368 196,876
Distributions on preferred securities of
subsidiary trust, net of income tax benefit........ -- (10,578) (520) (h) (11,098)
----------- ----------- ----------- --------------
Net income.......................................... $ 89,213 $ 84,717 $ 11,848 $ 185,778
=========== =========== =========== ==============
Earnings per share:
Basic............................................. $ 1.69 $ 0.63 $ 1.81
Assuming dilution................................. $ 1.64 $ 0.62 $ 1.76
Weighted average common shares outstanding:
Basic............................................. 52,656 135,168 (85,156) 102,668
Assuming dilution................................. 57,819 136,824 (86,199) 108,444
See accompanying Notes to Unaudited Pro Forma Consolidated Condensed Financial
Information.
-31-
AMERISOURCEBERGEN CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
NOTE 1. BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma consolidated condensed financial statements give
effect to the merger using the purchase method of accounting. Since the former
AmeriSource stockholders owned approximately 51% of AmerisourceBergen's common
stock immediately after the closing of the merger, AmerisourceBergen accounted
for the merger as an acquisition by AmeriSource of Bergen.
Following is a summary of the estimated aggregate purchase price (in
thousands):
Market value of common stock issued to Bergen stockholders.......... $ 2,299,156
Fair value of Bergen's stock options................................ 75,688
Estimated transaction costs......................................... 45,000
-------------
Total purchase price.............................................. $ 2,419,844
=============
AmerisourceBergen issued approximately 50 million shares of
AmerisourceBergen common stock in exchange for approximately 135.2 million
outstanding common shares of Bergen, based on an exchange ratio of 0.37 to 1
(each outstanding Bergen share was converted into 0.37 of a share of
AmerisourceBergen stock). The AmerisourceBergen common stock issued was valued
based on a price per share of $45.86, which was the weighted-average market
price of the AmeriSource common stock during the few days before and after the
date the merger was announced.
AmerisourceBergen issued options to purchase approximately 3.3 million
shares of AmerisourceBergen common stock in exchange for all of the outstanding
options of Bergen, based on a weighted-average fair value of $23.29 per option.
The fair value of the options was determined using the Black-Scholes option-
pricing model and was based on a weighted-average exercise price of $36.63 and
the following weighted-average assumptions: expected volatility--50.90%;
expected life--4 years; risk-free interest rate--4.64%; and expected dividend
yield--0.21%.
The estimated pro forma allocation of the purchase price is as follows (in
thousands):
Bergen's historical assets and liabilities.............................. $ 809,509
Adjustment of Bergen's historical assets and liabilities to fair value.. 63,855
Elimination of Bergen's historical goodwill............................. (663,268)
New goodwill............................................................ 2,209,748
----------
Total purchase price.................................................. $2,419,844
==========
The above pro forma allocation of the purchase price to the acquired assets
and liabilities is based on management's best estimate of the respective fair
values at this early stage of the merger process. However, such allocation is
preliminary and is subject to the completion of a more comprehensive valuation
process. Accordingly, the final allocation of the purchase price could differ
materially from the pro forma allocation reflected herein if materially
different fair value information is obtained.
AmeriSource announced to its employees that all stock options granted prior
to February 15, 2001 would vest 100% as of the close of business on the last
business day prior to the effective time of the merger. As a result of this
acceleration of vesting, AmeriSource recorded a charge of $6.5 million to its
earnings on the date of acceleration. This amount is not reflected in the
accompanying pro forma statements of operations.
Management is currently in the process of determining the integration plans
concerning its distribution network, systems requirements and corporate
administrative functions. The integration planning has been designed as a three-
phase process. Phase I included data capture, process mapping and day-one-
readiness tasks. The results
-32-
of this phase were completed during the third calendar quarter of 2001. During
Phase II, integration projects will be prioritized and a detailed integration
plan will be created. Phase II is expected to be completed in the fourth
calendar quarter of 2001. The final phase, Phase III, is the merger
implementation phase, which is expected to begin following the completion of
Phase II. Based on the timing of the activities as discussed above, the Company
has not finalized all integration decisions and, accordingly, the amounts of
merger-related integration costs have not been determined. Therefore, such
merger-related costs are not reflected in the pro forma purchase price
allocation or the accompanying pro forma statements of operations.
NOTE 2. PRO FORMA ADJUSTMENTS TO THE BALANCE SHEET
(a) Represents the adjustment of Bergen's inventory to fair value,
primarily consisting of the elimination of Bergen's last-in, first-out (LIFO)
valuation reserve.
(b) Represents the reclassification of income taxes receivable against
income taxes payable based on the consolidated AmerisourceBergen net tax payable
balance.
(c) Represents the establishment of deferred income tax assets and
liabilities to reflect differences between the book and tax bases resulting from
the pro forma adjustments described herein and the reclassification of current
deferred income tax assets against current deferred income tax liabilities based
on the consolidated AmerisourceBergen net current deferred income tax liability.
(d) Represents the adjustment of Bergen's property and equipment to its
estimated fair value.
(e) Reflects the elimination of Bergen's historical goodwill balance.
(f) Represents the preliminary allocation of the purchase price to
goodwill as described in Note 1 above.
(g) Represents the adjustment of Bergen facility leases to their estimated
fair value, based on current market rental rates.
(h) Represents the net effect of the financings, which include (i) the
offering of $500 million of old notes, (ii) the repayment of amounts outstanding
under the former bank credit facilities of AmeriSource and Bergen, (iii) the
closing of the new AmerisourceBergen senior bank credit facility, (iv) the
repurchase of $184.6 million of outstanding PharMerica 8 3/8 % notes tendered
pursuant to the terms of a tender offer, (v) the repurchase of all $20.6 million
of outstanding Durr-Fillauer 7% convertible debentures pursuant to the terms of
a change of control offer, (vi) payments of $84.5 million made in connection
with the merger under executive compensation and benefit arrangements and (vii)
payment of $45.0 million for the estimated transaction costs to be incurred by
AmeriSource and Bergen in connection with the merger, including investment
banking, legal and other professional fees and other merger-related fees. The
pro forma consolidated balance sheet assumes that these debt issuances and
retirements occurred on June 30, 2001. Reflected in the pro forma adjustment are
the write-off of the historical amounts of AmeriSource and Bergen deferred
financing costs associated with the bank credit facilities and debt to be
retired or revalued, as well as the addition of estimated deferred financing
costs associated with the new bank credit facilities and debt issued. Also
reflected is the payment of premiums and prepayment penalties associated with
certain of the bank credit facilities and debt to be retired.
(i) Represents the adjustment of Bergen's long-term debt to fair value,
based on quoted market prices.
(j) Represents the adjustment of Bergen's pension liabilities to their
estimated fair value.
(k) Represents the adjustment of Bergen's preferred securities of
subsidiary trust to fair value, based on quoted market prices.
-33-
(l) Represents the elimination of Bergen's historical stockholders' equity
and the retirement of AmeriSource's treasury shares.
(m) Represents the issuance of new shares of AmerisourceBergen common
stock in exchange for Bergen's common shares, and the issuance of new
AmerisourceBergen stock options in exchange for Bergen's stock options, as
described in Note 1 above.
NOTE 3. PRO FORMA ADJUSTMENTS TO STATEMENTS OF OPERATIONS
(a) Represents the net effect of two adjustments: (i) the reduction of
periodic pension expense, due to the adjustment of Bergen's pension liabilities
to their fair value and (ii) the amortization of the fair value of Bergen's
leases over the average remaining lease term of four years.
(b) Represents an increase in the depreciation of Bergen's property and
equipment based on the adjustment of such assets to fair value.
(c) Represents the elimination of Bergen's historical goodwill
amortization expense. Under the accounting rules set forth in Statement of
Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible
Assets" ("SFAS No. 142"), issued by the Financial Accounting Standards Board in
July 2001, goodwill is not amortized against earnings other than in connection
with an impairment.
(d) Represents the elimination of Bergen's $505.3 million goodwill
impairment charge in fiscal 2000.
(e) Represents an increase to interest expense as a result of the
adjustment of Bergen's long-term debt to its fair value as described in Note
2(i) above. The difference between the fair value and the face amount of each
borrowing is amortized as additional interest expense over the remaining term of
the borrowing. The borrowings mature at various dates between 2003 and 2008.
(f) Represents the net effect on interest expense resulting from the
financings described in Note 2(h) above. Pro forma net interest expense was
calculated under the assumption that the financings occurred on October 1, 1999.
Interest for fixed-rate debt was calculated based upon the expected fixed rates,
while interest for variable rate debt was calculated based on the historical
benchmark rates (such as LIBOR) plus the spreads set forth in the new bank
credit facilities. Historical borrowing levels were adjusted upward to reflect
the assumed payment of merger costs, financing costs, and certain executive
compensation and benefits on the effective date of the merger. Amortization of
deferred financing costs was calculated based on the expected amounts and terms
of the new bank credit facilities and debt issued.
(g) Represents the aggregate pro forma income tax effect of Notes 3(a)
through 3(f) above.
(h) Represents an increase in expense as a result of the adjustment of the
Bergen preferred securities of subsidiary trust to its fair value as described
in Note 2(k) above. The difference between the fair value and the face amount of
the securities is accreted to redemption value over the remaining term of the
securities, which mature in 2039. These adjustments are recorded as preferred
distributions, net of an assumed 40% income tax benefit.
NOTE 4. RECLASSIFICATIONS
Reclassifications have been made to the historical financial statements of
AmeriSource and Bergen to conform to the presentation expected to be used by the
combined company.
-34-
NOTE 5. EFFECT OF SPECIAL ITEMS
AmeriSource's historical amounts for the year ended September 30, 2000
include the effect of a pre-tax $1.1 million reversal of costs related to
facility consolidations and employee severance. Bergen's historical amounts for
the year ended September 30, 2000, excluding the write-down of goodwill of
$505.3 million described in Note 3(e) above, include special pre-tax charges for
provision for doubtful receivables associated with two customers of $66.7
million, a restructuring charge of $10.7 million, abandonment of capitalized
software of $6.3 million, officer severance of $4.0 million and an impairment of
an investment of $5.0 million. The after-tax effect of these special items on
the unaudited pro forma consolidated condensed results for the year ended
September 30, 2000 was to reduce pro forma income from continuing operations by
$55.3 million and reduce pro forma earnings from continuing operations per
share--assuming dilution by $.54 per share.
AmeriSource's historical amounts for the nine months ended June 30, 2001
include the effect of $0.6 million of merger costs net of income tax benefit of
$0.3 million. The after tax effect of these costs on the unaudited pro forma
consolidated condensed results for the nine months ended June 30, 2001, was to
reduce pro forma earnings per share--assuming dilution by $.01.
NOTE 6. EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS
The pro forma earnings (loss) per share from continuing operations has been
adjusted to reflect the issuance of AmerisourceBergen common stock in the merger
based on Bergen's historical weighted average shares outstanding for the periods
presented at the exchange ratio of 0.37 to 1. In addition, Bergen's historical
weighted average shares outstanding--assuming dilution for the year ended
September 30, 2000 have been adjusted to include the dilutive effect of Bergen's
stock options, which were anti-dilutive in Bergen's historical financial
statements. Additionally, the earnings per share--assuming dilution calculation
for the nine months ended June 30, 2001 considers the AmeriSource convertible
subordinated notes as if they were converted and, therefore, the effect of
interest expense related to these notes is added back to net income in
determining income available to common stockholders.
NOTE 7. NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" ("SFAS No. 141") and SFAS No. 142. SFAS No. 141 applies
to all business combinations completed after June 30, 2001 and requires the use
of the purchase method of accounting. SFAS No. 141 also establishes new criteria
for determining whether intangible assets should be recognized separately from
goodwill. SFAS No. 142 is effective for fiscal years beginning after December
15, 2001, however, companies with fiscal years beginning after March 15, 2001
may elect to adopt the statement early. SFAS No. 142 provides that goodwill and
intangible assets with indefinite lives will not be amortized, but rather will
be tested for impairment on an annual basis. SFAS No. 141 is not expected to
have a significant impact on the results of operations or financial position of
the Company. The Company expects to early adopt SFAS No. 142 on October 1, 2001.
Adoption of SFAS No. 142 is expected to result in the elimination of
approximately $1.4 million of amortization expense per year.
-35-
AMERISOURCE AND BERGEN
SELECTED CONSOLIDATED FINANCIAL DATA
Selected Historical Financial Data
The following tables present (i) selected historical financial data of
AmeriSource and (ii) selected historical financial data of Bergen.
AmeriSource
Selected Historical Financial Data
The selected historical financial data of AmeriSource has been derived from
the consolidated financial statements and related notes of AmeriSource for each
of the years in the five-year period ended September 30, 2000 and the
consolidated financial statements for the nine months ended June 30, 2001 and
2000. The historical data is only a summary, and you should read it in
conjunction with the historical financial statements and related notes
incorporated by reference in this prospectus.
As of or for the Year Ended As of or for the
September 30, Nine Months
Ended June 30,
------------------------------------------------------------------ -------------------------
1996 1997(a) 1998(b) 1999(c) 2000(d) 2000(d) 2001(e)
------------------------------------------------------------------ -------------------------
(dollars in thousands, except per share amounts)
Statement of Operations Data:
Operating revenue................ $5,806,126 $8,173,679 $9,373,482 $9,760,083 $11,609,995 $8,582,219 $10,306,288
Bulk deliveries to customers'
warehouses...................... 111,046 124,956 129,555 47,280 35,026 31,072 834
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total revenue.................... 5,917,172 8,298,635 9,503,037 9,807,363 11,645,021 8,613,291 10,307,122
Income before extraordinary
items........................... 43,463 50,123 46,030 70,915 99,014 71,018 89,213
Net income....................... 36,221 48,141 46,030 67,466 99,014 71,018 89,213
Earnings per share-assuming
dilution:
Income before extraordinary
items.......................... .90 1.00 .91 1.38 1.90 1.37 1.64
Net income(f)................... .75 .96 .91 1.31 1.90 1.37 1.64
Balance Sheet Data:
Cash and cash equivalents and
restricted cash................. 73,832 71,551 90,344 59,497 120,818 36,160 94,298
Total assets..................... 1,236,221 1,798,109 1,726,272 2,060,599 2,458,567 2,402,780 2,887,944
Long-term debt, including current
portion......................... 443,908 602,166 540,327 559,127 413,675 533,382 643,379
Stockholders' equity (deficit)... (34,856) 18,881 75,355 166,277 282,294 245,143 402,925
___________
(a) Includes $7.1 million of costs related to facility consolidations and
employee severance, net of income tax benefit of $4.5 million.
(b) Includes $11.2 million of merger costs, net of income tax benefit of $7.2
million and $5.1 million of costs related to facility consolidations and
employee severance, net of income tax benefit of $3.2 million.
(c) Includes $9.3 million of costs related to facility consolidations and
employee severance, net of income tax benefit of $2.4 million and $2.7
million of merger costs, net of income tax benefit of $0.5 million.
(d) Includes a $0.7 million reversal of costs related to facility
consolidations and employee severance, net of income tax benefit of $0.4
million.
(e) Includes $0.6 million of merger costs, net of income tax benefit of $0.3
million.
(f) In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
("SFAS No. 141") and SFAS No. 142, "Goodwill and Other Intangible Assets,"
("SFAS No. 142"). SFAS No. 141 applies to all business combinations
completed after June 30, 2001 and requires the use of the purchase method
of accounting. SFAS No. 141
-36-
also establishes new criteria for determining whether intangible assets
should be recognized separately from goodwill. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001; however, companies with
fiscal years beginning after March 15, 2001 may elect to adopt the
statement early. SFAS No. 142 provides that goodwill and intangible assets
with indefinite lives will not be amortized, but rather will be tested for
impairment on an annual basis. SFAS No. 141 is not expected to have a
significant impact on the results of operations or financial position of
AmeriSource. While AmeriSource has not fully evaluated the impact of SFAS
142, adoption of this standard is expected to result in the elimination of
approximately $1.4 million of amortization expense per year.
-37-
Bergen
Selected Historical Financial Data
The selected historical financial data of Bergen has been derived from the
consolidated financial statements and related notes of Bergen for each of the
years in the five-year period ended September 30, 2000 and the consolidated
financial statements for the nine months ended June 30, 2001 and 2000. The
historical data is only a summary, and you should read it in conjunction with
the historical financial statements and related notes incorporated by reference
in this prospectus.
As of or for the Year Ended As of or for the
September 30, Nine Months
Ended June 30,
------------------------------------------------------------------ -------------------------
1996 1997(a) 1998(b)(c)(d) 1999(d)(e) 2000(d)(f) 2000 2001
------------------------------------------------------------------ -------------------------
(dollars in thousands, except per share amounts)
Statement of Operations
Data:
Net sales and other revenue:
Excluding bulk shipments to
customers' warehouses...... $ 9,321,645 $10,908,560 $12,943,739 $16,137,864 $18,725,611 $13,888,268 $15,240,338
Bulk shipments to
customers' warehouses...... 2,476,110 2,837,646 3,401,651 4,056,479 4,217,291 3,109,046 3,187,009
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total net sales and other
revenue.................... 11,797,755 13,746,206 16,345,390 20,194,343 22,942,902 16,997,314 18,427,347
Earnings (loss) from
continuing operations
(g)(h)..................... 73,608 81,044 95,247 84,380 (481,026) 64,309 84,717
Earnings (loss) per share
from continuing
operations--diluted........ .73 .80 .93 .71 (3.58) .48 .62
Cash dividends declared per
Class A Common share....... .192 .216 .315 .225 .170 .16 .03
Balance Sheet Data:
Cash and cash equivalents... 21,407 54,493 79,003 116,356 94,032 191,504 60,804
Total assets................ 2,426,892 2,637,828 2,929,622 5,399,452 4,571,424 5,355,092 5,010,373
Long-term debt, including
current portion............ 398,030 418,177 448,323 1,537,604 1,089,646 1,343,917 1,112,800
Preferred securities of
subsidiary trust holding
solely debt securities of
Bergen..................... -- -- -- 300,000 300,000 300,000 300,000
Stockholders' equity........ 578,966 644,861 629,064 1,495,490 723,249 1,269,192 809,509
____________
(a) Includes special charges for merger expenses of $3.4 million, net of income
tax benefit of $2.4 million, relating to the termination of a previously
proposed merger.
(b) Includes special charges for merger expenses of $8.6 million, net of income
tax benefit of $6.0 million, primarily relating to the termination of a
previously proposed merger; and abandonment of capitalized software of $3.2
million, net of income tax benefit of $2.1 million.
(c) Includes a cash dividend of $0.075 per share declared September 24, 1998
and paid December 1, 1998.
(d) For information regarding business acquisitions and dispositions during
these fiscal years, see Item 7 of Bergen's Form 10-K for the fiscal year
ended September 30, 2000.
(e) Includes a special provision for doubtful receivables of $27.8 million, net
of income tax benefit of $18.2 million.
(f) Includes special charges for goodwill impairment of $505.3 million, no
income tax effect; provision for doubtful receivables associated with two
customers of $40.4 million, net of income tax benefit of $26.3 million;
restructuring charge of $6.4 million, net of income tax benefit of $4.3
million; abandonment of capitalized software of $3.8 million, net of income
tax benefit of $2.5 million; officer severance of $2.4 million, net of
income tax benefit of $1.6 million; and impairment of investment of $3.0
million, net of income tax benefit of $2.0 million.
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(g) The following table summarizes the special charges described in notes (a),
(b), (e) and (f) above:
For the Year Ended September 30,
---------------------------------------------------------------------------------
1997 1998 1999 2000
----------------- --------------- ----------------- -----------------
(in thousands)
Goodwill impairment...................... $ -- $ -- $ -- $ (505,300)
Special provision for doubtful
receivables............................. -- -- (46,000) (66,700)
Restructuring charge..................... -- -- -- (10,670)
Abandonment of capitalized software...... -- (5,307) -- (6,309)
Impairment of investment................. -- -- -- (5,000)
Officer severance........................ -- -- -- (3,973)
Merger-related expenses.................. (5,800) (14,635) -- --
----------- ----------- ------------- ----------
Total pre-tax effect................... (5,800) (19,942) (46,000) (597,952)
Income tax benefit....................... 2,378 8,178 18,170 36,598
----------- ----------- ------------- ----------
Effect on earnings from continuing
operations............................ $ (3,422) $ (11,764) $ (27,830) $ (561,354)
=========== =========== ============= ==========
(h) In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
and SFAS No. 142. SFAS No. 141 applies to all business combinations
completed after June 30, 2001 and requires the use of the purchase method
of accounting. SFAS No. 141 also establishes new criteria for determining
whether intangible assets should be recognized separately from goodwill.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001; however, companies with fiscal years beginning after March 15, 2001
may elect to adopt the statement early. SFAS No. 142 provides that goodwill
and intangible assets with indefinite lives will not be amortized, but
rather will be tested for impairment on an annual basis. SFAS No. 141 is
not expected to have a significant impact on the results of operations or
financial position of Bergen. While Bergen has not fully evaluated all the
provisions of SFAS No. 142, it would be expected to eliminate amortization
of goodwill. During the year ended September 30, 2000, the amortization of
goodwill was approximately $31.7 million.
-39-
BUSINESS
AmerisourceBergen
We are a leading wholesale distributor of pharmaceutical products and
related healthcare services and solutions in the United States. We distribute a
full line of products, including pharmaceuticals, proprietary medicines,
cosmetics, toiletries, personal health products, sundries and home healthcare
supplies and equipment. We provide services to acute care hospitals and health
systems, independent retail pharmacies, alternate site customers (physicians'
offices and clinics, skilled nursing facilities, mail-order facilities, assisted
living centers and patients with chronic illnesses) and national and regional
retail pharmacy chains located in all 50 states, the District of Columbia,
Puerto Rico and the Territory of Guam. We believe we are the largest
distributor of pharmaceuticals to the acute care hospital and health systems
market and one of the largest wholesalers of pharmaceuticals and specialty
healthcare products to the independent retail pharmacy market. We also
distribute pharmaceuticals to long-term care and workers' compensation patients
and provide product distribution, logistics, pharmacy management programs,
consulting services and internet fulfillment services designed to reduce costs
and improve patient outcomes.
Industry Overview
We have benefited from the significant growth of the full service wholesale
drug industry in the United States. According to an independent third party
provider of information to the pharmaceutical and healthcare industry, industry
sales grew from approximately $68 billion in 1995 to approximately $140 billion
in 2000 and are expected to grow to approximately $264 billion in 2005.
The factors contributing to the growth of the full service wholesale drug
industry in the United States, and other favorable industry trends, include:
. Aging Population. The number of individuals over age 65 in the United
States grew from approximately 31 million in 1990 to approximately 35
million in 2000 and is projected to increase to more than 39 million
by the year 2010. This age group suffers from a greater incidence of
chronic illnesses and disabilities than the rest of the population
and is estimated to account for approximately two-thirds of total
healthcare expenditures in the United States.
. Introduction of New Pharmaceuticals. Traditional research and
development as well as the advent of new research, production and
delivery methods, such as biotechnology and gene research and
therapy, continue to generate new compounds and delivery methods that
are more effective in treating diseases. These compounds have been
responsible for significant increases in pharmaceutical sales. We
believe that ongoing research and development expenditures by the
leading pharmaceutical manufacturers will contribute to continued
growth of the industry.
. Increased Use of Outpatient Drug Therapies. In response to rising
healthcare costs, governmental and private payors have adopted cost
containment measures that encourage the use of efficient drug
therapies to prevent or treat diseases. While national attention has
been focused on the overall increase in aggregate healthcare costs,
we believe that drug therapy has had a beneficial impact on overall
healthcare costs by reducing expensive surgeries and prolonged
hospital stays. Pharmaceuticals currently account for less than 11%
of overall healthcare costs, and manufacturers' emphasis on research
and development is expected to continue the introduction of cost-
effective drug therapies.
. Rising Pharmaceutical Prices. Consistent with historical trends, we
believe that pharmaceutical price increases will continue to equal or
exceed the overall Consumer Price Index. We believe that these
increases will be due in large part to the relatively inelastic
demand in the face of higher prices charged for patented drugs as
manufacturers have attempted to recoup costs associated with the
development, clinical testing and FDA approval of new products.
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. Expiration of Patents for Brand Name Pharmaceuticals. A significant
number of patents for widely-used brand name pharmaceutical products
will expire in the next several years. Such products are expected to
be marketed by generic manufacturers and distributed by us. We
consider this a favorable trend because generic products have
historically provided a greater gross profit margin opportunity than
brand name products.
The Company
We are a leading national wholesale distributor of pharmaceutical products
and related healthcare services and solutions with pro forma operating revenue
(excluding bulk shipments) of approximately $30 billion, Adjusted EBITDA of
approximately $584 million and pro forma operating income of approximately $426
million for the fiscal year ended September 30, 2000.
We were formed in March 2001 when AmeriSource and Bergen announced their
intentions to combine in a merger-of-equals to form our Company. The merger,
which was consummated in August 2001, will enable the Company to significantly
enhance its competitive position with:
. enhanced scale of operations;
. operating and administrative cost savings;
. improved purchasing efficiencies;
. improved working capital management; and
. broadened product offering.
As a result of the merger, we expect to achieve estimated cost savings of
approximately $150 million per year by the end of the third year following the
consummation of the merger from, among other things, the consolidation of
distribution facilities and related working capital improvements, the
elimination of duplicative administrative functions and generic inventory
purchasing efficiencies. We also expect to benefit from lower financing costs
as a result of the combination.
We are attractively positioned in the market as the only national wholesale
pharmaceutical distributor exclusively focused on pharmaceutical product
distribution, services and solutions. We serve the following major market
segments:
. acute care hospitals and health systems;
. independent retail pharmacies;
. the alternate site market; and
. national and regional retail pharmacy chains.
We currently serve customers through a geographically diverse network of
distribution centers in the United States. We are typically the primary source
of supply for pharmaceutical and related products to our customers. We offer a
broad range of solutions to our customers and suppliers designed to enhance the
efficiency and effectiveness of their operations, allowing them to improve the
delivery of healthcare to patients and consumers and lower overall costs in the
pharmaceutical supply chain.
Our customer base is geographically diverse and balanced with no single
customer representing more than 7.3% of pro forma fiscal 2000 operating revenue.
The merger combines two companies with complementary customer bases that have
minimal overlap. We have leading market positions in the acute care hospital
and health systems market, which represented approximately 30% of pro forma
fiscal 2000 operating revenue, and the independent retail pharmacy market, which
represented approximately 29% of pro forma fiscal 2000 operating revenue. We
also have a strong presence with the national and regional retail pharmaceutical
chains, which represented 17% of pro forma fiscal 2000 operating revenue.
-41-
In the attractive alternate site market we supply pharmaceuticals and other
related products and services to physicians in the oncology, nephrology,
vaccine, plasma and other specialty healthcare markets. We serve a continuum of
customers including physicians' offices and clinics, skilled nursing facilities,
mail-order facilities, assisted living centers and patients with chronic
illnesses. We also provide plasma to acute care hospitals. The alternate site
market represents approximately 24% of pro forma fiscal 2000 operating revenue.
Strategy
Our business strategy is anchored in national pharmaceutical distribution
and services, reinforced by the value-added healthcare solutions we provide our
customers and suppliers. This focused strategy has significantly expanded our
predecessors' businesses over the past five years and we believe we are well-
positioned to continue to grow revenue and increase operating income through the
execution of the following key elements of our business strategy:
. Continue Growth in Existing Markets. We believe that we are well-
positioned to continue to grow in our existing markets by: (i) providing
superior distribution services to our customers and suppliers and (ii)
delivering specific programs and services unique to each of our customer
groups. We strive to provide exceptional service to our customers, which
is reflected in the consistently high rankings achieved by our
predecessor companies in recent customer surveys.
. Expand Growth Opportunities through Healthcare Solutions for Customers.
We are continually enhancing our services and packaging these services
into programs designed to enable customers to improve sales and compete
more effectively. As a result of the merger, we have broadened the range
of value-added solutions that AmeriSource and Bergen offered their
customers. We expect to integrate complementary AmeriSource and Bergen
services and programs, such as generic purchasing programs, independent
retail pharmacy marketing programs and customer order and inventory
management systems offered to retail pharmacies, into a comprehensive
solution package consisting of the best features of existing services
and programs. We intend to market these solutions to existing customers
and to use the increased range of services to attract new customers.
. Expand Growth Opportunities through Healthcare Solutions for Suppliers.
We have been developing solutions for suppliers to improve the
efficiency of the healthcare supply chain. Programs for suppliers to
assist with rapid new product launches, promotional and marketing
services to accelerate product sales, custom packaging and product data
reporting are examples of value-added solutions currently offered. We
believe these services will continue to expand, further contributing to
our revenue and income growth. We also intend to acquire companies that
deliver complementary value-added products and services to our existing
customers and suppliers.
. Improve Operating and Capital Efficiencies. We believe we already have
one of the lowest operating cost structures among our major national
competitors. We expect to lower our cost structure further as we
consolidate our existing distribution facility network and establish
new, more efficient distribution centers. We also intend to further
reduce operating expenses as a percentage of revenue by eliminating
duplicate administrative functions. These measures are designed to
reduce marginal operating costs, provide greater access to financing
sources and reduce the cost of capital. In addition, we believe we will
continue to achieve productivity and operating income gains as we invest
in and continue to implement warehouse automation technology, adopt
"best practices" in warehousing activities and increase operating
leverage due to increased volume per full service distribution facility.
-42-
Operations
Operating Structure. Our businesses operate in two segments. The first
segment, pharmaceutical distribution, includes our core wholesale pharmaceutical
drug distribution business, ASD Specialty Healthcare--our pharmaceutical
alternate site distribution business and American Health Packaging--our
pharmaceutical repackaging business. Pharmaceutical distribution also includes
a number of smaller specialty units in areas such as management reimbursement
consulting services and third party logistics services for pharmaceutical
manufacturers. Our second operating segment is PharMerica, a leading national
provider of institutional pharmacy services in long-term care and alternate site
settings. PharMerica also provides mail-order pharmacy services to chronically
and catastrophically ill patients under workers' compensation programs.
Pharmaceutical Distribution. The Pharmaceutical Distribution segment,
including ASD Specialty Healthcare, Inc. ("ASD"), American Health Packaging
("AHP"), Integrated Commercialization Solutions ("ICS"), The Lash Group
("Lash"), Pharmacy Healthcare Solutions, Ltd. ("PHS") and Choice Systems, Inc.
("Choice") form one of the largest national distributors of products sold or
used by hospital, institutional and retail pharmacies. We principally
distribute a full line of brand name and generic pharmaceuticals and over-the-
counter medications from distribution centers in 44 states and the Commonwealth
of Puerto Rico. These products are sold to acute care hospitals and health
systems, independent retail pharmacies, the alternate site market and national
and regional retail pharmacy chains located in all 50 states, the District of
Columbia, Puerto Rico and the Territory of Guam.
ASD was established during fiscal 1994 to provide pharmaceutical products
and services for the rapidly growing pharmaceutical alternate site business.
ASD is a leading supplier of pharmaceuticals and other products and services to
physicians in the oncology, nephrology, vaccine, plasma and other specialty
healthcare markets and has four principal distribution locations in four states.
AHP delivers unit dose, punch card and unit-of-use packaging for health systems,
alternate site and independent retail pharmacies. ICS provides distribution,
accounting, marketing, education and other outsourcing services for
pharmaceutical manufacturers. Lash provides consulting and management of
reimbursement and patient-assistance programs. PHS provides hospital consulting
to improve operational efficiencies and a proprietary program for recovering
indigent patient pharmaceutical reimbursements. Choice develops and markets
inventory management systems and related software for hospitals and other
healthcare providers.
PharMerica. PharMerica is a leading provider of institutional pharmacy
services to the elderly, chronically-ill and disabled in long-term care and
alternate site settings, including skilled nursing facilities, assisted living
facilities, specialty hospitals, residential living communities and the home.
PharMerica also provides mail-order pharmacy services to chronically and
catastrophically ill patients under workers' compensation programs. As of June
30, 2001, PharMerica served approximately 289,000 patients in long-term care and
alternate site facilities and 88,000 patients covered under workers'
compensation benefits programs.
PharMerica's institutional pharmacy business involves the purchase of bulk
quantities of prescription and nonprescription pharmaceuticals, principally from
BBDC, and the distribution of those products to residents in long-term care
facilities. Unlike hospitals, most long-term care facilities do not have onsite
pharmacies to dispense prescription drugs but depend instead on institutional
pharmacies such as PharMerica to provide the necessary pharmacy products and
services and to play an integral role in monitoring patient medication.
PharMerica's pharmacies dispense pharmaceuticals in patient-specific packaging
in accordance with physician orders. In addition, PharMerica provides infusion
therapy services and Medicare Part B products, as well as formulary management
and other pharmacy consulting services.
PharMerica's network of 131 locations covers a geographic area that
includes over 85% of the nation's institutional/long-term care beds. Each
PharMerica pharmacy typically serves customers within a 150-mile radius.
PharMerica's workers' compensation business provides pharmaceutical claims
administration and mail-order distribution. PharMerica's services include home
delivery of prescription drugs, medical supplies and equipment and an array of
computer software solutions to reduce the payor's administrative costs.
Sales and Marketing. We have approximately 500 sales professionals
organized regionally and specialized by customer type. Customer service
representatives are located in distribution facilities in order to respond to
customer needs in a timely and effective manner. In addition, a specially
trained group of telemarketing
-43-
representatives makes regular contact with customers regarding special
promotions. Our corporate marketing department designs and develops the
AmerisourceBergen array of value-added customer solutions. Tailored to specific
customer groups, these programs can be further customized at the distribution
facility level to adapt to local market conditions. Corporate sales and
marketing also serves national account customers through close coordination with
local distribution centers.
Facilities. Each of our distribution facilities carries an inventory
suited to the needs of the local market. The efficient distribution of small
orders is possible through the extensive use of computerization and modern
warehouse techniques. These include computerized warehouse product location,
routing and inventory replenishment systems, gravity-flow racking, mechanized
order selection and efficient truck loading and routing. We typically deliver
our products to our customers on a daily basis. We utilize a fleet of owned and
leased vans and trucks and contract carriers. Night picking operations in our
distribution facilities have further reduced delivery time. Orders are generally
delivered in less than 24 hours.
The following table presents certain information on a fiscal year basis
regarding the AmeriSource and Bergen operating units on a combined basis prior
to the merger.
Fiscal Year Ended September 30, (1)
----------------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ----------- ------------ ------------
(dollars in millions; square feet in thousands)
Operating revenue............................... $15,087 $18,978 $22,114 $25,402 $29,452
Number of distribution facilities............... 52 56 56 57 57
Average revenue per distribution facility....... $ 290 $ 338 $ 394 $ 445 $ 516
Total square feet (distribution facilities)..... 5,094 5,745 5,727 5,807 5,848
Average revenue per square foot in whole
dollars (distribution facilities) $ 2,962 $ 3,303 $ 3,861 $ 4,374 $ 5,036
___________
(1) Includes full service pharmaceutical distribution facilities and ASD
distribution facilities.
Customers and Markets. We have a diverse customer base that includes acute
care hospitals, health systems, independent retail pharmacies, alternate site
customers and national and regional retail pharmaceutical chains, including
pharmacy departments of supermarkets and mass merchandisers. We are typically
the primary source of supply for our customers. In addition, we offer a broad
range of value-added solutions designed to enhance the operating efficiencies
and competitive positions of our customers, allowing them to improve the
delivery of healthcare to patients and consumers.
No single customer represented more than 7.3% of AmeriSource's and Bergen's
total operating revenue on a combined basis during fiscal 2000. Including the
Veterans Administration, AmeriSource's, and Bergen's top ten customers on a
combined basis represented approximately 24.9% of the total pro forma operating
revenue during fiscal 2000.
Suppliers. Historically, AmeriSource and Bergen obtained pharmaceutical
and other products from a number of manufacturers, none of which accounted for
more than approximately 7% of AmeriSource's and Bergen's net sales on a combined
basis in fiscal 2000. The five largest suppliers in fiscal 2000 accounted for
approximately 26% of AmeriSource's and Bergen's combined net sales. AmeriSource
and Bergen have not experienced difficulty in purchasing desired products from
suppliers in the past. We currently have agreements with many of our suppliers
which generally require them to maintain an adequate quantity of a supplier's
products in inventory. The majority of contracts with suppliers are terminable
upon 30 days notice by either party. The loss of certain suppliers could
adversely affect our business if alternate sources of supply are unavailable.
We believe that our relationships with our suppliers are good.
Management Information Systems. We continually invest in advanced
management information systems and automated warehouse technology. Our
management information systems provide for, among other things, electronic order
entry by customers, invoice preparation and purchasing and inventory tracking.
As a result of electronic order entry, the cost of receiving and processing
orders has not increased as rapidly as sales volume. Our customized systems
strengthen customer relationships by allowing the customer to lower its
operating costs and by
-44-
providing the basis for a number of the value-added services offered to its
customers, including marketing data, inventory replenishment, single-source
billing, computer price updates and price labels.
AmeriSource and Bergen operate their respective full service pharmaceutical
distribution facilities with different centralized management information
systems. We are now in the process of evaluating the two systems and intend to
use a common system in the future. This process is complex and will take
several years to complete.
We plan to continue to make system investments to further improve our
information capabilities and meet our customer and operational needs.
Currently, we are expanding our electronic interface with suppliers and now
electronically process a substantial portion of our purchase orders, invoices
and payments. We also intend to expand our use of warehouse automation systems.
Competition
We engage in the wholesale distribution of pharmaceuticals and related
healthcare solutions in a highly competitive environment. We compete with both
national and regional distributors, some of which are larger and have greater
financial resources than we do. Our national competitors include Cardinal
Health, Inc. and McKesson Corporation. In addition, we compete with regional
and local distributors, direct-selling manufacturers, warehousing chain
drugstores and other specialty distributors. Competitive factors include value-
added service programs, breadth of product, price, service and delivery, credit
terms and customer support.
PharMerica's competitors principally include national institutional
pharmacies and long-term care company-owned captive pharmacies. We believe that
the competitive factors most important in PharMerica's lines of business are
quality and range of service offered, comparative prices, reputation with
referral sources, ease of doing business with the provider and the ability to
develop and maintain relationships with referral sources. One of PharMerica's
competitors is significantly larger than PharMerica. In addition, there are
relatively few barriers to entry in the local markets served by PharMerica and
it may encounter substantial competition from local market entrants. PharMerica
competes with numerous billing companies in connection with its workers'
compensation electronic claims adjudication business.
Employees
As of June 30, 2001 we employed approximately 13,700 persons, of which
approximately 12,000 were full-time employees. Approximately 6% of full and
part-time employees are covered by collective bargaining agreements. We
consider our relationship with our employees and the unions representing certain
of our employees to be satisfactory.
Government Regulation
From time to time various federal and state agencies may investigate our
compliance with legal and regulatory requirements applicable to our operations,
and may initiate actions in response to perceived non-compliance with these
requirements. Generally, we have been able to satisfy their concerns or resolve
the issues, and believe that we are in material compliance with applicable
requirements.
Healthcare Regulation
Certain pharmaceutical products and medical supplies sold by us are subject
to federal and state statutes and regulations governing the sale, marketing,
packaging and distribution of prescription drugs, including controlled
substances, and medical devices.
Licensure and Registration Laws
The DEA, the FDA and various state boards of pharmacy regulate the
distribution of pharmaceutical products and controlled substances, requiring
wholesale distributors of these substances to register for permits and licenses,
and to meet various security and operating standards. As a wholesale
distributor of pharmaceuticals, the Company is subject to these regulations.
Furthermore, we (particularly in our PharMerica operations) and/or our customers
are subject to extensive licensing requirements. The DEA and FDA laws and
regulations are broad in scope and are subject to frequent modification and
varied interpretation. Significant criminal, civil and administrative sanctions
may be imposed for violation of these laws and regulations.
-45-
Medicare and Medicaid
As part of various changes made to Medicare, the United States Congress
established the Prospective Payment System ("PPS") in 1997 for Medicare patients
in skilled nursing facilities. PPS pays a federal daily rate for virtually all
covered skilled nursing facility services. Under PPS, PharMerica's skilled
nursing facility customers are no longer able to pass through their costs for
certain products and services provided by PharMerica. Instead, PharMerica's
customers receive a federal daily rate to cover the costs of all eligible goods
and services provided to Medicare patients, which may include certain
pharmaceutical and other goods and services provided by PharMerica that were
previously reimbursed separately under Medicare. Since the reimbursement to
skilled nursing facilities by Medicare is limited by PPS, such facilities now
have an increased incentive to negotiate with PharMerica to minimize the costs
of providing goods and services to patients covered under Medicare. PharMerica
continues to bill skilled nursing facilities on a negotiated fee schedule.
PharMerica's reimbursement for pharmaceuticals provided under state
Medicaid programs are also subject to government regulation. During the fourth
quarter of fiscal 2000, PharMerica began to experience the negative impact of
two recent regulatory events which reduced reimbursement under state Medicaid
programs, and it is expected that such lower reimbursements will continue into
future years. The first event was the announcement by approximately 34 states
of a significant reduction in AWP reimbursement levels for certain intravenous
(IV) drugs provided to Medicaid beneficiaries. The second event was CMS'
reduction of FUL prices, which are used to set the reimbursement levels for
numerous pills and tablets dispensed to Medicaid beneficiaries.
Kickback/Referral Restrictions
The fraud and abuse laws (i) preclude, among other things, persons from
soliciting, offering, receiving or paying any remuneration in order to induce
the purchasing of items or services that are paid for by Medicare or Medicaid
and (ii) impose a number of restrictions upon referring physicians and providers
of designated health services under Medicare and Medicaid programs. Significant
criminal, civil and administrative sanctions may be imposed for violation of
these laws.
Health Information Practices
HIPAA and related rules and regulations set forth health information
standards in order to protect security and privacy in the exchange of
individually identifiable health information. Significant criminal and civil
penalties may be imposed for violation of these standards. Management is not
currently in the position to estimate or predict the cost of compliance with
HIPAA requirements.
Healthcare Reform
As a result of a wide variety of political, economic and regulatory
influences, the healthcare delivery industry in the United States is and will
continue to be under intensive scrutiny and subject to fundamental changes. We
cannot predict which, if any, of such reform proposals will be adopted, when
they may be adopted or what impact they may have on us.
Environmental Regulation
At our former Charleston, South Carolina, distribution center there is
evidence of residual soil contamination remaining from the fertilizer
manufacturing process operated on that site by third parties over thirty years
ago. Our environmental consulting firm has conducted soil surveys and
groundwater studies at various times since 1994. Early studies indicated that
there was lead on-site at levels requiring further investigation and the
preliminary analysis prepared during the third quarter of fiscal 1994 indicated
that, if both soil and groundwater remediation are required, the approximate
cost would be $4.1 million. Recent analyses have resulted in a reduction in the
estimated liability for remediation to approximately $1.0 million. Such
estimate, which is reflected in other liabilities in our consolidated balance
sheet, is based on the present estimate of the extent of contamination, choice
of remedy, and enacted laws and regulations, including remedial standards;
however, changes in any of these could affect the estimated liability.
-46-
and enacted laws and regulations, including remedial standards; however, changes
in any of these could affect the estimated liability.
Properties
As of June 30, 2001, we conducted our business from office and operating
unit facilities at 184 owned and leased locations throughout the United States
and Puerto Rico. In the aggregate, our operating units occupy approximately 7.9
million square feet of office and warehouse space, of which approximately 2.9
million square feet is owned and approximately 5.0 million square feet is leased
under lease agreements with expiration dates ranging from fiscal 2001 to fiscal
2010.
Our 52 full service pharmaceutical distribution facilities range in size
from approximately 20,000 square feet to 231,500 square feet, with an aggregate
of approximately 5.8 million square feet. Leased facilities are located in
Puerto Rico plus the following states: Alabama, Arizona, California, Colorado,
Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky,
Maryland, Massachusetts, Minnesota, Missouri, New Jersey, North Carolina, Ohio,
Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington and West
Virginia. Owned facilities are located in the following states: Alabama,
California, Georgia, Illinois, Indiana, Kentucky, Massachusetts, Michigan,
Mississippi, Missouri, Ohio, Oklahoma, Tennessee, Texas and Virginia. We
utilize a fleet of owned and leased vans and trucks, as well as contract
carriers to deliver our products. We consider our operating properties to be in
satisfactory condition and well utilized with adequate capacity for growth.
As of June 30, 2001, our PharMerica operations were located in 114 leased
locations ranging in size from approximately 150 to 89,000 square feet and have
a combined area of approximately 1,152,000 square feet. The lease expiration
dates of the leased facilities range from fiscal 2001 through fiscal 2010.
As of June 30, 2001, the other business units within the pharmaceutical
distribution segment (our pharmaceutical alternate site distribution business,
our pharmaceutical repackaging businesses and our smaller specialty units) were
located in thirteen leased and two owned locations. The locations range in size
from approximately 2,000 square feet to 153,000 square feet and have a combined
area of approximately 678,000 square feet. The leases expire from fiscal 2001
through fiscal 2005.
We own and lease an aggregate of approximately 315,000 square feet of
general and executive offices in Orange, California and Chesterbrook,
Pennsylvania, and lease approximately 28,000 square feet of data processing
offices in Montgomery, Alabama. The lease expiration dates of these facilities
range from fiscal 2004 through fiscal 2010.
Legal Proceedings
AmeriSource
For a description of AmeriSource's legal proceedings see the annual report
of AmeriSource on Form 10-K filed with the SEC on December 20, 2000, the
relevant portions of which are incorporated by reference herein and the
quarterly reports of AmeriSource on Form 10-Q filed with the SEC on February 13,
2001, May 14, 2001 and August 14, 2001, the relevant portions of which are
incorporated by reference herein.
Bergen
For a description of Bergen's legal proceedings see the annual report of
Bergen on Form 10-K filed with the SEC on December 29, 2000, the relevant
portions of which are incorporated by reference herein, and the quarterly
reports of Bergen on Form 10-Q filed with the SEC on February 14, 2001, May 14,
2001 and August 14, 2001, respectively, the relevant portions of which are
incorporated by reference herein.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
We issued and sold the old notes to the initial purchasers on August 14,
2001. The initial purchasers subsequently sold the old notes to qualified
institutional buyers in reliance on Rule 144A under the Securities Act. Because
the old notes are subject to transfer restrictions, we, the subsidiary
guarantors and the initial purchasers entered into a registration rights
agreement dated August 14, 2001 under which we agreed:
. on or before November 12, 2001, to prepare and file with the
Securities and Exchange Commission the registration statement of which
this prospectus is a part;
. on or before February 10, 2002, to use our best efforts to cause the
registration statement to become effective under the Securities Act;
. upon the effectiveness of the registration statement, to offer the new
notes in exchange for surrender of the old notes; and
. to keep the exchange offer open for not less than 30 days (or longer
if required by applicable law) after the date notice of the exchange
offer is mailed to the holders of the old notes.
The registration statement is intended to satisfy in part our obligations
relating to the old notes under the registration rights agreement.
Under existing interpretations of the Securities and Exchange Commission,
the new notes will be freely transferable by holders other than our affiliates
after the exchange offer without further registration under the Securities Act
if the holder of the new notes represents that:
. it is acquiring the new notes in the ordinary course of its business;
. it has no arrangement or understanding with any person to participate
in the distribution of the new notes; and
. it is not our affiliate, as that term is interpreted by the Securities
and Exchange Commission.
However, broker-dealers receiving new notes in the exchange offer will have a
prospectus delivery requirement regarding resales of the new notes. The
Securities and Exchange Commission has taken the position that broker-dealers
receiving new notes in the exchange offer may fulfill their prospectus delivery
requirements relating to new notes (other than a resale of an unsold allotment
from the original sale of the old notes) with this prospectus. Under the
registration rights agreement, we are required to allow broker-dealers receiving
new notes in the exchange offer and other persons, if any, with similar
prospectus delivery requirements to use this prospectus in connection with the
resale of the new notes. Each broker-dealer that receives new notes for its own
account in exchange for old notes, where the notes were acquired by the broker-
dealer as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
the new notes. See "Plan of Distribution."
Terms of The Exchange Offer; Period For Tendering Old Notes
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying Letter of Transmittal (which together constitute the
exchange offer), we will accept for exchange old notes which are properly
tendered on or prior to the expiration date of the exchange offer and not
withdrawn as permitted below. The expiration date of the exchange offer shall
be 5:00 p.m., New York City time, on November 30, 2001, unless extended by us,
in our sole discretion.
As of the date of this prospectus, $500.0 million aggregate principal
amount of the old notes are outstanding. This prospectus, together with the
Letter of Transmittal, is first being sent on or about October 30, 2001
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to all holders of old notes known to us. Our obligation to accept old notes for
exchange pursuant to the exchange offer is subject to conditions as set forth
under "-- Conditions to the Exchange Offer" below.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for any exchange of any old notes, by giving notice of the extension
to the holders of old notes as described below. During any extension, all old
notes previously tendered will remain subject to the exchange offer and may be
accepted for exchange by us. Any old notes not accepted for exchange for any
reason will be returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified below under "-- Conditions to the Exchange Offer." We will give
notice of any extension, amendment, non-acceptance or termination to the holders
of the old notes as promptly as practicable, the notice in the case of any
extension to be issued no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date of the exchange
offer.
Holders of old notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law in connection with the exchange offer.
Procedures for Tendering Old Notes
The tender to us of old notes by a holder of old notes as set forth below
and the acceptance of the tender by us will constitute a binding agreement
between the tendering holder and us upon the terms and subject to the conditions
set forth in this prospectus and in the accompanying Letter of Transmittal.
Except as set forth below, a holder who wishes to tender old notes for exchange
under the exchange offer must transmit a properly completed and duly executed
Letter of Transmittal, including all other documents required by the Letter of
Transmittal, to The Chase Manhattan Bank and Trust Company, National Association
at the address set forth below under "--Exchange Agent" on or prior to the
expiration date of the exchange offer. In addition, the exchange agent must
receive:
. certificates for the old notes along with the Letter of Transmittal,
or
. prior to the expiration date of the exchange offer, a timely
confirmation of a book-entry transfer of the old notes into the
exchange agent's account at The Depository Trust Company in accordance
with the procedure for book-entry transfer described below, or
. the holder must comply with the guaranteed delivery procedure
described below.
The method of delivery of old notes, Letters of Transmittal and all other
required documents is at your election and risk. If delivery is by mail, we
recommend that you use registered mail, properly insured, with return receipt
requested. In all cases, you should allow sufficient time to assure timely
delivery. You should not send Letters of Transmittal or old notes to us.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes surrendered for exchange
are tendered:
. by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instruction" or "Special Delivery
Instruction" on the Letter of Transmittal; or
. for the account of a firm which is a member of a registered national
securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having
an office or correspondent in the United States.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, the guarantees
must be by a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States. If old notes are registered in the name of a person other than a signer
of the Letter of Transmittal, the old notes surrendered for exchange must be
endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by
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us in our sole discretion, duly executed by the registered holder with the
signature on the old notes guaranteed by a firm which is a member of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc. or a commercial bank or trust company having an
office or correspondent in the United States.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee, and who wishes
to tender, should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
old notes, either (1) make appropriate arrangements to register ownership of the
old notes in the owner's name or (2) obtain a properly completed bond power from
the registered holder. The transfer of registered ownership may take
considerable time.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of old notes tendered for exchange will be determined by
us in our sole discretion. This determination shall be final and binding. We
reserve the absolute right to reject any and all tenders of any particular old
notes not properly tendered or to not accept any particular old notes which
acceptance might, in our judgment or our counsel's judgment, be unlawful. We
also reserve the absolute right to waive any defects or irregularities or
conditions of the exchange offer as to any particular old notes either before or
after the expiration date of the exchange offer (including the right to waive
the ineligibility of any holder who seeks to tender old notes in the exchange
offer). The interpretation of the terms and conditions of the exchange offer as
to any particular old notes either before or after the expiration date of the
exchange offer (including the Letter of Transmittal and the instructions to the
Letter of Transmittal) by us shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of old notes
for exchange must be cured within a reasonable period of time as we shall
determine. Neither we, the exchange agent nor any other person shall be under
any duty to give notification of any defect or irregularity regarding any tender
of old notes for exchange, nor shall any of them incur any liability for failure
to give notification.
If the Letter of Transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing, and, unless waived by
us, proper evidence satisfactory to us of their authority to so act must be
submitted.
By tendering, each holder of old notes will represent to us in writing
that, among other things:
. the new notes acquired in the exchange offer are being obtained in the
ordinary course of business of the holder and any beneficial holder;
. neither the holder nor any beneficial holder has an arrangement or
understanding with any person to participate in the distribution of
the new notes; and
. neither the holder nor any other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of our company. If the holder is
not a broker-dealer, the holder must represent that it is not engaged
in nor does it intend to engage in distribution of the new notes.
If any holder or any other person is an "affiliate," as defined under Rule
405 of the Securities Act, of ours, or is engaged in, or intends to engage in,
or has an arrangement or understanding with any person to participate in, a
distribution of the new notes to be acquired in the exchange offer, the holder
or any other person (1) may not rely on the applicable interpretations of the
staff of the Securities and Exchange Commission and (2) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
If the holder is a broker-dealer, the holder must represent that it will
receive new notes for its own account in exchange for old notes that were
acquired as a result of market-making activities or other trading activities.
Each broker-dealer that receives new notes for its own account in exchange for
old notes, where the old notes were acquired by the broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the new notes. See
"Plan of Distribution."
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Acceptance of Old Notes For Exchange; Delivery Of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date of the exchange offer, all
old notes properly tendered, and will issue the new notes promptly after
acceptance of the old notes. See "--Conditions to the Exchange Offer" below.
For purposes of the exchange offer, we shall be deemed to have accepted properly
tendered old notes for exchange when, as and if we have given oral and written
notice to the exchange agent.
The new notes will bear interest from the most recent date to which
interest has been paid on the old notes, or if no interest has been paid on the
old notes, from August 14, 2001. Accordingly, registered holders of new notes
on the relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from August 14, 2001. Old notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the exchange offer. Holders
of old notes whose old notes are accepted for exchange will not receive any
payment for accrued interest on the old notes otherwise payable on any interest
payment date the record date for which occurs on or after consummation of the
exchange offer and will be deemed to have waived their rights to receive accrued
interest on the old notes.
In all cases, issuance of new notes for old notes that are accepted for
exchange in the exchange offer will be made only after timely receipt by the
exchange agent of (1) certificates for the old notes or a timely confirmation of
a book-entry transfer of the old notes into the exchange agent's account at The
Depository Trust Company, (2) a properly completed and duly executed Letter of
Transmittal and (3) all other required documents. If any tendered old notes are
not accepted for any reason set forth in the terms and conditions of the
exchange offer or if old notes are submitted for a greater principal amount than
the holder desires to exchange, the unaccepted or non-exchanged old notes will
be returned without expense to the tendering holder of the old notes (or, in the
case of old notes tendered by book-entry transfer into the exchange agent's
account at The Depository Trust Company according to the book-entry transfer
procedures described below, the non-exchanged old notes will be credited to an
account maintained with the Depository Trust Company) as promptly as practicable
after the expiration of the exchange offer.
Book-Entry Transfer
Any financial institution that is a participant in The Depository Trust
Company's systems may make book-entry delivery of old notes by causing The
Depository Trust Company to transfer the old notes into the exchange agent's
account at The Depository Trust Company in accordance with The Depository Trust
Company's procedures for transfer. However, although delivery of old notes may
be effected through book-entry transfer at The Depository Trust Company, the
Letter of Transmittal or facsimile of the Letter of Transmittal with any
required signature guarantees and any other required documents must, in any
case, be transmitted to and received by the exchange agent at the address set
forth below under "--Exchange Agent" on or prior to the expiration date of the
exchange offer, unless the holder has strictly complied with the guaranteed
delivery procedures described below.
We understand that the exchange agent has confirmed with The Depository
Trust Company that any financial institution that is a participant in The
Depository Trust Company's system may utilize The Depository Trust Company's
Automated Tender Offer Program to tender old notes. We further understand that
the exchange agent will request, within two business days after the date the
exchange offer commences, that The Depository Trust Company establish an account
for the old notes for the purpose of facilitating the exchange offer, and any
participant may make book-entry delivery of old notes by causing The Depository
Trust Company to transfer the old notes into the exchange agent's account in
accordance with The Depository Trust Company's Automated Tender Offer Program
procedures for transfer. However, the exchange of the old notes so tendered
will only be made after timely confirmation of the book-entry transfer and
timely receipt by the exchange agent of, in addition to any other documents
required, an appropriate Letter of Transmittal with any required signature
guarantee and an agent's message, which is a message, transmitted by The
Depository Trust Company and received by the exchange agent and forming part of
a confirmation of a book-entry transfer, which states that The Depository Trust
Company has received an express acknowledgment from a participant tendering old
notes which are the subject of the confirmation of a book-entry transfer and
that the participant has received and agrees to be bound by the terms of the
Letter of Transmittal and that we may enforce the agreement against that
participant.
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Guaranteed Delivery Procedures
If a registered holder of the old notes desires to tender the old notes and
the old notes are not immediately available, or time will not permit the
holder's old notes or other required documents to reach the exchange agent
before the expiration date of the exchange offer, or the procedure for book-
entry transfer cannot be completed on a timely basis, a tender may nonetheless
be effected if:
. the tender is made through a firm which is a member of a registered
national securities exchange or a member of the National Association
of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States;
. prior to the expiration date of the exchange offer, the exchange agent
received from the firm which is a member of a registered national
securities exchange or a member of the National Association of
Securities Dealers, Inc. or commercial bank or trust company having an
office or correspondent in the United States a properly completed and
duly executed Letter of Transmittal (or a facsimile of the Letter of
Transmittal) and Notice of Guaranteed Delivery, substantially in the
form provided by us (by telegram, telex, facsimile transmission, mail
or hand delivery), setting forth the name and address of the holder of
old notes and the amount of old notes tendered, stating that the
tender is being made and guaranteeing that within five New York Stock
Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered old
notes, in proper form for transfer, or a confirmation of a book-entry
transfer, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the firm which is a member
of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or commercial bank or
trust company having an office or correspondent in the United States
with the exchange agent; and
. the certificates for all physically tendered old notes, in proper form
for transfer, or a confirmation of a book-entry transfer, as the case
may be, and all other documents required by the Letter of Transmittal
are received by the exchange agent within five New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed
Delivery.
Withdrawal Rights
Tenders of old notes may be withdrawn at any time prior to the expiration
date of the exchange offer. For a withdrawal to be effective, a written notice
of withdrawal must be received by the exchange agent at the address set forth
below under "--Exchange Agent." Any notice of withdrawal must:
. specify the name of the person having tendered the old notes to be
withdrawn;
. identify the old notes to be withdrawn (including the principal amount
of the old notes); and
. where certificates for old notes have been transmitted, specify the
name in which the old notes are registered, if different from that of
the withdrawing holder.
If certificates for old notes have been delivered or otherwise identified to the
exchange agent, then, prior to the release of the certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States unless the
holder is a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States.
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If old notes have been tendered in accordance with the procedure for book-
entry transfer described above, any notice of withdrawal must specify the name
and number of the account at The Depository Trust Company to be credited with
the withdrawn old notes and otherwise comply with the procedures of the
facility. All questions as to the validity, form and eligibility (including
time of receipt) of the notices will be determined by us, whose determination
shall be final and binding on all parties. Any old notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
exchange offer. Any old notes which have been tendered for exchange but which
are not exchanged for any reason will be returned to the holder without cost to
the holder (or in the case of old notes tendered by book-entry transfer into the
exchange agent's account at The Depository Trust Company according to the book-
entry transfer procedures described above, the old notes will be credited to an
account maintained with The Depository Trust Company for the old notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn old notes may be retendered by following one
of the procedures described under "--Procedures for Tendering Old Notes" above
at any time on or prior to the expiration date of the exchange offer.
Conditions To The Exchange Offer
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the exchange offer if at any time before the
acceptance of the old notes for exchange or the exchange of new notes for the
old notes, we determine that:
. the exchange offer does not comply with any applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission;
. we have not received all applicable governmental approvals; or
. any actions or proceedings of any governmental agency or court exist
which could materially impair our ability to consummate the exchange
offer.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any condition or may be waived by
us in whole or in part at any time and from time to time in our reasonable
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of that right and each right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any old notes, if at that time any stop
order shall be threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture under the Trust Indenture Act of 1939, as amended. In any event
we are required to use every reasonable effort to obtain the withdrawal of any
stop order at the earliest possible time.
Exchange Agent
The Chase Manhattan Bank and Trust Company, National Association has been
appointed as the exchange agent for the exchange offer. All executed Letters of
Transmittal should be directed to the exchange agent at the address set forth
below. Questions and requests for assistance, requests for additional copies of
this prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the exchange agent addressed as
follows:
The Chase Manhattan Bank and Trust Company, National Association
c/o The Chase Manhattan Bank
Corporate Trust Services
2001 Bryan Street, 9/th/ Floor
Dallas, Tx 75202
Attention: Mr. Frank Ivins [Confidential]
Delivery other than as set forth above will not constitute a valid
delivery.
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Fees and Expenses
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone by
our officers and employees.
The expenses to be incurred in connection with the exchange offer will be
paid by us. These expenses include fees and expenses of the exchange agent and
trustee under the indenture governing the notes, accounting and legal fees and
printing costs, among others.
Accounting Treatment
The new notes will be recorded at the same carrying amount as the old
notes, which is the principal amount as reflected in our accounting records on
the date of the exchange and, accordingly, no gain or loss will be recognized.
The debt issuance costs will be capitalized and amortized to interest expense
over the term of the new notes.
Transfer Taxes
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection with the tender, except that holders who
instruct us to register new notes in the name of, or request that old notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
Consequences of Failure To Exchange; Resales of New Notes
Holders of old notes who do not exchange their old notes for new notes in
the exchange offer will continue to be subject to the restrictions on transfer
of the old notes as set forth in the legend on the old notes as a consequence of
the issuance of the old notes in accordance with exemptions from, or in
transactions not subject to, the registration requirements of, the Securities
Act and applicable state securities laws. Old notes not exchanged in accordance
with the exchange offer will continue to accrue interest at 8 1/8% per annum and
will otherwise remain outstanding in accordance with their terms. Holders of
old notes do not have any appraisal or dissenters' rights under the Delaware
General Corporation Law in connection with the exchange offer. In general, the
old notes may not be offered or sold unless registered under the Securities Act,
except in accordance with an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. We do not currently
anticipate that we will register the old notes under the Securities Act.
However, (1) if because of any change in law or in applicable interpretations by
the staff of the Securities and Exchange Commission, we are not permitted to
effect the exchange offer, (2) if the exchange offer is not consummated by March
12, 2002, (3) if any initial purchaser so requests that the old notes not
eligible be exchanged for new notes in the exchange offer and held by it
following consummation of the exchange offer or (4) if any holder of old notes
(other than a broker-dealer that receives new notes for its own account in
exchange for old notes, where the old notes were acquired by the broker-dealer
as a result of market-making or other trading activities) is not eligible to
participate in the exchange offer or, in the case of any holder of old notes
(other than a broker-dealer that receives new notes for its own account in
exchange for old notes, where the old notes were acquired by the broker-dealer
as a result of market-making or other trading activities) that participates in
the exchange offer, does not receive new notes in exchange for old notes that
may be sold without restriction under state and federal securities laws, we are
obligated to file a shelf registration statement on the appropriate form under
the Securities Act relating to the old notes held by such persons.
Based on interpretive letters issued by the staff of the Securities and
Exchange Commission to third parties in unrelated transactions, we are of the
view that new notes issued in accordance with the exchange offer may be offered
for resale, resold or otherwise transferred by the holders (other than (1) any
holder which is an "affiliate" of us within the meaning of Rule 405 under the
Securities Act or (2) any broker-dealer that purchases notes from us to resell
in accordance with Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the new notes are acquired in the ordinary course
of the holders' business and the holders have no arrangement or understanding
with any person to participate in the distribution of the new notes. If any
holder has any arrangement or understanding regarding the distribution of the
new notes to be acquired in accordance with the exchange offer, the holder (1)
could not rely on the applicable interpretations of the staff of the Securities
and Exchange Commission and (2) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. A
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broker-dealer who holds old notes that were acquired for its own account as a
result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of new notes. Each broker-dealer that receives new
notes for its own account in exchange for old notes, where the old notes were
acquired by the broker-dealer as a result of market-making activities or other
trading activities, must acknowledge in the Letter of Transmittal that it will
deliver a prospectus in connection with any resale of the new notes. See "Plan
of Distribution." We have not requested the staff of the Securities and Exchange
Commission to consider the exchange offer in the context of a no-action letter,
and there can be no assurance that the staff would take positions similar to
those taken in the interpretive letters referred to above if we were to make a
no-action request.
In addition, to comply with the securities laws of applicable
jurisdictions, the new notes may not be offered or sold unless they have been
registered or qualified for sale in the applicable jurisdictions or an exemption
from registration or qualification is available and is complied with. We have
agreed, under the registration rights agreement and subject to specified
limitations therein, to register or qualify the new notes for offer or sale
under the securities or blue sky laws of the applicable jurisdictions in the
United States as any selling holder of the notes reasonably requests in writing.
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MANAGEMENT
Directors, Executive Officers and Key Employees
The principal executive officers and directors of AmerisourceBergen are as
follows:
Name Age Title
---- --- -----
R. David Yost.................... 53 President, Chief Executive Officer and Director of AmerisourceBergen
Kurt J. Hilzinger................ 41 Executive Vice President and Chief Operating Officer of
AmerisourceBergen
Neil F. Dimick................... 51 Executive Vice President and Chief Financial Officer of
AmerisourceBergen
Charles J. Carpenter............. 51 Senior Vice President and President of PharMerica, Inc.
Steven H. Collis................. 39 Senior Vice President and President of ASD Specialty Healthcare,
Inc.
Brent R. Martini................. 41 Senior Vice President and President of AmerisourceBergen Drug
Company
William G. Sprague............... 58 Vice President, General Counsel and Secretary
Robert E. Martini................ 68 Director and Non-executive Chairman of the Board of
AmerisourceBergen
Rodney H. Brady.................. 66 Director
Richard C. Gozon................. 62 Director
Edward E. Hagenlocker............ 61 Director
James R. Mellor.................. 69 Director
Francis G. Rodgers............... 73 Director
J. Lawrence Wilson............... 64 Director
R. David Yost. Mr. Yost served as director of AmeriSource from 1997 until
the merger. He was Chairman of AmeriSource's board of directors and Chief
Executive Officer of AmeriSource from December 2000 until the merger. Mr. Yost
previously served as President and Chief Executive Officer of AmeriSource from
May 1997 to December 2000. Prior to that, Mr. Yost served as Executive Vice
President--Operations of AmeriSource since 1995. Mr. Yost held a variety of
sales, marketing and management positions with AmeriSource or its predecessors
since 1974. Mr. Yost was a member of the Capital Appropriations Committee of
AmeriSource's board of directors.
Kurt J. Hilzinger. Mr. Hilzinger served as President and Chief Operating
Officer of AmeriSource from December 2000 until the merger. Prior to that time
he served as Senior Vice President and Chief Operating Officer of AmeriSource
from January 1999 to December 2000. He served as Senior Vice President, Chief
Financial Officer of AmeriSource from 1997 to 1999 and Vice President, Chief
Financial Officer and Treasurer of AmeriSource from 1995 to 1997.
Neil F. Dimick. Mr. Dimick served as Senior Executive Vice President and
Chief Financial Officer of Bergen from 1992 until the merger of AmeriSource and
Bergen and was formerly Bergen's Vice President, Finance from 1991 to 1992. He
was also President of Bergen Brunswig Specialty Company from September 1996 to
August 2000. Mr. Dimick was a member of the Bergen board of directors from 1995
until the merger and was Chairman of Bergen's Financing Committee of the board
of directors and a member of Bergen's Investment Retirement Plan Committee of
the board of directors.
Charles J. Carpenter. Mr. Carpenter served as President, PharMerica, Inc.,
from April 1999 until the merger, and Senior Executive Vice President of Bergen
from 1996 until the merger. Prior to that, he was Chief Procurement Officer of
Bergen, from 1996 to April 1999 and Executive Vice President, Supplier Relations
and Operations, Bergen Brunswig Drug Company, a subsidiary of Bergen, from 1995
to 1996.
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Steven H. Collis. Mr. Collis served as Senior Executive Vice President of
Bergen from February 2000 until the merger and President of ASD Specialty
Healthcare, Inc., from September 2000 until the merger. He was also Executive
Vice President of ASD Specialty Healthcare, Inc., from 1996 to August 2000 and
was General Manager of ASD Specialty Healthcare, Inc., from 1994 to 1996.
Brent R. Martini. Mr. Martini served as Senior Executive Vice President of
Bergen and President of Bergen Brunswig Drug Company, a subsidiary of Bergen,
from September 1996 until the merger. Prior to that he was Executive Vice
President, West Region of Bergen from 1994 to 1996 and Vice President, Quality
Organizational Development and Training of Bergen Brunswig Drug Company from
1991 to 1994. Mr. Martini was a director of Bergen from December 1999 until the
merger. Mr. Martini is a director of Healthcare Distribution Management
Association, a national trade association that represents pharmaceutical and
related healthcare product distributors throughout the Americas. Mr. Brent R.
Martini is the son of Mr. Robert E. Martini, former Chairman and Chief Executive
Officer of Bergen and current Chairman of the board of directors of
AmerisourceBergen.
William G. Sprague. Mr. Sprague was appointed Vice President, General
Counsel and Secretary of AmeriSource in November 1998. Prior to that time he
served as Vice President, General Counsel and Secretary of Lukens, Inc. from
1992 to 1998.
Robert E. Martini. Mr. Martini served as a director of Bergen from 1962
until the merger. He was the Chairman of the board of directors of Bergen from
1992 until the merger and Chief Executive Officer of Bergen from November 1999
until the merger. Prior to that, he had been a consultant to Bergen since 1997.
Mr. Martini had been Chief Executive Officer of Bergen from 1990 to 1997 and
President of Bergen from 1981 to 1992. Mr. Martini was a member of Bergen's
Executive Committee and Financing Committee. Mr. Martini is a director of
Mossimo, Inc. Mr. Martini is the father of Brent R. Martini, a former Senior
Executive Vice President and member of the board of directors of Bergen and the
current Senior Vice President and President of AmerisourceBergen.
Rodney H. Brady. Mr. Brady served as a director of Bergen from 1973 until
the merger. Mr. Brady has been the President and Chief Executive Officer of
Deseret Management Corporation (diversified corporate holding company) since
April 1996. He is the former President and Chief Executive Officer, Bonneville
International Corporation (broadcast communications) (1985 to 1996). Mr. Brady
is a director of Deseret Mutual Insurance Company and has also served as a
director of First Security Corporation.
Richard C. Gozon. Mr. Gozon was a director of AmeriSource from 1994 until
the merger. He has served as the Executive Vice President of Weyerhaeuser
Company since June 1994. Mr. Gozon is a director of UGI Corporation, Triumph
Group, Inc., and Amerigas Partners, L.P.
Edward E. Hagenlocker. Mr. Hagenlocker was a director of AmeriSource from
1999 until the merger. He is the retired Vice Chairman of Ford Motor Company
and served in that position from 1996 until his retirement in 1999. He also
served as Chairman of Visteon from 1997 to 1999. He formerly served as
President of Ford Automotive Operations from 1994 to 1996 and Chairman of Ford
of Europe in 1996. He serves as a director of Boise Cascade Corporation,
Nanophase Technologies Corporation and Air Products and Chemicals, Inc.
James R. Mellor. Mr. Mellor served as a director of Bergen from 1979 until
the merger. He has served as Chairman of the Board of USEC, Inc. since July
1998. Mr. Mellor is the former Chairman of the Board and Chief Executive
Officer (1993 to 1997), and former President and Chief Operating Officer (1991
to 1993) of General Dynamics Corporation (diversified defense and aerospace).
Mr. Mellor is a director of General Dynamics Corporation, Aeromovel USA, Inc.,
USEC, Inc. and Computer Sciences Corporation.
Francis G. Rodgers. Mr. Rodgers served as a director of Bergen from 1982
until the merger. He is also an author and lecturer and the former Vice
President of Marketing for IBM (information processing systems). Mr. Rodgers is
a director of Milliken and Company, Protegrity Inc. and Response Logic Inc.
J. Lawrence Wilson. Mr. Wilson was a director of AmeriSource from January
2000 until the merger. He is the Retired Chairman and Chief Executive Officer
of Rohm and Haas Company where he served from 1988 until his retirement in 1999.
He serves as a director of Cummins Engine Company, Inc., Mead Corporation and
The Vanguard Group of Investment Companies.
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The AmerisourceBergen bylaws also provide for the establishment of an
executive management committee. The executive management committee will be
comprised of: (i) the President and Chief Executive Officer of
AmerisourceBergen, (ii) the Executive Vice President and Chief Operating Officer
of AmerisourceBergen, (iii) the Executive Vice President and Chief Financial
Officer of AmerisourceBergen, (iv) the Senior Vice President of
AmerisourceBergen and President of AmerisourceBergen Drug Company, (v) the
Senior Vice President of AmerisourceBergen and President of PharMerica, Inc. and
(vi) the Senior Vice President of AmerisourceBergen and President of ASD
Specialty Healthcare, Inc.
The executive management committee will have all of the power and authority
in the management of the business and affairs of AmerisourceBergen, insofar as
it pertains to capital expenditures and acquisitions, as the board of directors
of AmerisourceBergen may determine.
Compensation of Executive Officers
The following table sets forth, for the period from August 29, 2001 through
September 30, 2001(1), certain information regarding the cash compensation paid
by the Company, as well as certain other compensation paid or accrued for that
time period, to each of the persons who served as an executive officer of the
Company.
Summary Compensation Table
Long Term Compensation
--------------------------------------------------------------
Awards Payouts
--------------------------------------------------------------
Other Restricted Securities
Name and Principal Compen- Stock Underlying LTIP All Other
Position Salary ($) Bonus ($) sation($) Awards(s) ($) Options (#) Payouts ($) Compensation ($)
---------------------- ---------- --------- --------- ------------- ----------- ----------- ----------------
R. David Yost........ 49,466 53,521 -- -- 100,000 -- 250 (2)
President, Chief
Executive Officer and
Director of
AmerisourceBergen
Kurt J. Hilzinger..... 32,120 31,758 -- -- 75,000 -- 250 (2)
Executive Vice
President and Chief
Operating Officer
Neil F. Dimick........ 34,615 40,500 -- -- 50,000 -- 786 (3)
Executive Vice
President and Chief
Financial Officer
Brent R. Martini...... 29,646 19,167 -- -- 25,000 -- 546 (3)
Senior Vice President
and President of
AmerisourceBergen Drug
Company
Charles J. Carpenter.. 27,623 27,983 -- -- 25,000 -- 546 (3)
Senior Vice President
and President of
PharMerica, Inc.
(1) The following information is for this period only because it was on August
29, 2001 that the merger of AmeriSource and Bergen was completed and
AmerisourceBergen began trading on the New York Stock Exchange as a public
company on August 30, 2001.
(2) "All Other Compensation" for Mr. Yost and Mr. Hilzinger represents club
dues.
(3) "All Other Compensation" for Mr. Dimick, Mr. Martini and Mr. Carpenter
represents imputed compensation reflecting the difference between the
average market interest rate for the Company and the interest free loan to
the respective officer.
Stock Options
Option Grants
The following table sets forth certain information with respect to options
granted to and exercised by the executive officers of the Company during the
period from August 29, 2001 through September 30, 2001. The information set
forth in these tables relates to options granted to and exercised by the
executive officers of the Company to purchase shares of Common Stock under the
2001 Stock Option Plan.
Individual Grants
-----------------
Number of
Securities % of Exercise
Underlying Total Options/ or Base Grant Date
Options/SARs SARs Granted to Price Present
Name Granted(#) (1) Employees ($/Sh) Expiration Date Value($) (2)
---- -------------- --------- ------ --------------- ------------
R. David Yost.............. 100,000 5.79% 64.02 September 17, 2011 $3,023,000
Kurt J. Hilzinger.......... 75,000 4.34 64.02 September 17, 2011 2,267,250
Neil F. Dimick............. 50,000 2.89 64.02 September 17, 2011 1,511,500
Brent R. Martini........... 25,000 1.45 64.02 September 17, 2011 755,750
Charles J. Carpenter....... 25,000 1.45 64.02 September 17, 2011 755,750
(1) The options granted under the 2001 Stock Option Plan become exercisable at
a rate of 25% each year, beginning one year from the date of grant.
(2) Present values were calculated using the Black-Scholes option valuation
method. The actual value, if any, that an executive officer may receive is
dependent on the excess of the stock price over the exercise price. Use of
this model should not be viewed as a forecast of the future performance of
the Company's stock price. The estimated grant date present value of the
stock options was $30.23 based on the following defined option terms and
assumptions: (a) a grant price of $64.02; (b) an exercise price of $64.02;
(c) an expected life of 5 years; (d) a risk free interest rate of 3.99%,
which represents the yield on Treasury Bonds with maturity dates
corresponding to that of the options; (e) a dividend yield of .16%
representing the stock's current yield; and (f) a stock price volatility
rate of .497, which reflects how much the stock price varied on a weekly
basis since the initial public offering of AmeriSource's Common Stock on
April 4, 1995.
Aggregated Option Exercises and Option Values
The following table sets forth information regarding the number of
exercised options during the period from August 29, 2001 through September 30,
2001 and the value of unexercised in-the-money options held by the executive
officers of the Company as of September 30, 2001:
Number of Securities Value of Unexercised
Underlying In-the-Money
Options/SARs at Options/SARs at
Shares Acquired Value FY-end (#) FY-end ($)
On Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable (1)
---- ----------- -------- ------------- -----------------
R. David Yost.............. 28,000 1,419,600 176,250/298,750 7,622,750/8,419,000
Kurt J. Hilzinger.......... 24,000 1,258,337 135,000/270,000 5,819,500/7,397,688
Neil F. Dimick............. 0 0 142,436/144,781 3,954,338/4,584,610
Brent R. Martini........... 0 0 106,353/112,023 2,608,190/4,249,012
Charles J. Carpenter ...... 0 0 84,257/111,690 1,604,654/4,204,966
(1) Value calculated as the difference between the fair market value of the
Common Stock on September 28, 2001 and the option exercise price.
OWNERSHIP OF CAPITAL STOCK
For information concerning the beneficial ownership of the capital stock of
AmeriSource and Bergen, see AmeriSource's and Bergen's respective proxy
statements used in connection with their 2001 annual meetings of stockholders,
the relevant portions of which are incorporated by reference herein.
DESCRIPTION OF CAPITAL STOCK
For a description of AmerisourceBergen's Capital Stock, see Form S-4/A
filed with the SEC on July 27, 2001, the relevant portions of which are
incorporated by reference herein.
DESCRIPTION OF OTHER INDEBTEDNESS
Senior Debt
In connection with the merger, AmerisourceBergen entered into a credit
agreement (the "Credit Agreement") with a syndicate of senior lenders providing
a senior secured facility of $1.3 billion. The new credit facility (i) provides
for a revolving credit facility in the maximum amount of $1 billion and (ii) a
term loan facility in the amount of $300 million, $100 million of which is
available for letters of credit. The new credit facility expires on August
2006. Among other things, the Credit Agreement provides for: (i) interest rates
of LIBOR plus a spread and (ii) the release of security based upon achievement
of investment grade senior, unsecured debt ratings from Moodys and Standard &
Poors credit rating agencies. In connection with the Credit Agreement,
AmerisourceBergen incurred approximately $12 million of financing fees which
will be deferred and amortized on a
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straight-line basis over the five-year term of the Credit Agreement. The term
loan facility will be subject to amortization of principal in annual amounts to
be determined.
Borrowings under the Credit Agreement bear interest at the rate of LIBOR
plus a spread or the applicable prime rate plus a spread. Interest on loans
under the Credit Agreement are payable at least quarterly. Under the terms of
the Credit Agreement, AmerisourceBergen granted the senior lenders a perfected
first priority security interest in AmerisourceBergen's inventory and other
assets for collateral against borrowings under the Credit Agreement.
AmerisourceBergen is required to pay a commitment fee on the unused portion of
the commitment under the Credit Agreement plus an annual administration fee.
The credit agreement contains affirmative covenants usual for facilities
and transactions of this type. These covenants include the following:
. satisfactory insurance;
. payment of taxes;
. delivery of financial statements;
. maintenance of properties; and
. compliance with laws.
The credit agreement contains negative covenants usual for facilities and
transactions of this type. These include the following restrictions:
. indebtedness;
. liens;
. sale/leaseback arrangements;
. dividends and distributions;
. capital expenditures;
. mergers, acquisitions and assets dispositions;
. investments;
. transactions with affiliates;
. changes in businesses conducted; and
. amendments of certain material documents.
Additional covenants require compliance by AmerisourceBergen with specified
financial ratios, including a leverage ratio and a fixed charge ratio.
Obligations under the credit agreement are unconditionally guaranteed by
AmerisourceBergen's current and future domestic subsidiaries, with certain
exceptions.
AmeriSource Securitization
Effective May 14, 1999, AmeriSource, through a consolidated wholly-owned
special-purpose entity, established a new receivables securitization facility,
which provided AmeriSource with up to $325 million in available credit. During
the third quarter of fiscal 2000, AmeriSource amended its receivables
securitization facility to provide an additional $75 million of borrowing
capacity, increasing total commitments under this facility to $400 million (the
"Securitization Facility"). In connection with the Securitization Facility,
AmeriSource sells on a revolving basis certain accounts sponsored by a financial
institution. AmeriSource was retained as servicer of the sold accounts
receivables. The Securitization Facility has an expiration date of May 2004.
Interest is at a rate at which funds are obtained by the financial institution
to fund the receivables (short-term commercial paper rates) plus a program fee
of 38.5 basis points (7.0% at September 30, 2000). AmeriSource is required to
pay a commitment fee of 25 basis points on any unused credit in excess of $25
million under the facility. Fees of $0.9 million incurred to
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establish and amend the Securitization Facility were deferred and are being
amortized on a straight-line basis over the term of the Securitization Facility.
The transaction does not qualify as a "sale" in accordance with SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," and, accordingly, AmeriSource accounts for the Securitization
Facility as a financing transaction in its consolidated financial statements.
Proceeds from the Securitization Facility were used to extinguish
AmeriSource's prior receivables securitization financing ("Receivables Program")
in the fourth quarter of fiscal 1999 and resulted in an extraordinary charge of
$0.7 million (net of a $0.4 million tax benefit) related to the write-off of
unamortized deferred financing fees. The Receivables Program bore interest at
rates ranging from LIBOR plus 0.2% to the federal funds rate plus 1%.
Transactions under this program did not qualify as sales under SFAS No. 125 and,
accordingly, AmeriSource accounted for the Receivables Program as a financing
transaction.
Bergen Securitization
On December 20, 2000, Bergen replaced its receivables securitization
program by entering into a new receivables securitization agreement with a
financial institution. The new agreement, which has a five-year term, provides
for a longer commitment by the financial institution than did the prior
agreement, which had a one-year term. In addition, the new agreement is
designed to give Bergen additional availability, improved pricing and more
flexibility in the timing of receivable sales. Availability is subject to
specified percentages of eligible receivables, as defined in the agreement. The
initial maximum availability under the program was $350 million, but Bergen
increased the maximum to $450 million in August 2001 upon payment of an
additional fee.
Through the new Bergen receivables securitization program, Bergen's
subsidiary drug company sells, on an ongoing basis, its accounts receivable to
Blue Hill II ("Blue Hill"), a 100%-owned special purpose subsidiary. Blue Hill,
in turn, sells an undivided percentage ownership interest in such receivables to
various investors. The program qualifies for treatment as a sale of assets
under SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." Sales are recorded at the estimated fair
value of the receivables sold, reflecting discounts for the time value of money
based on specified interest rates and estimated credit losses; the weighted
average rate for the program was approximately 4.73% at June 30, 2001.
As of June 30, 2001 and September 30, 2000, Bergen had outstanding net
proceeds of $340 million and $168 million, respectively, from the sale of such
receivables under its receivables securitization program, and accounts
receivable has been reduced by these amounts in the accompanying Consolidated
Balance Sheets. After the maximum limit of receivables sold has been reached
and as sold receivables are collected, additional receivables may be sold up to
the maximum amount available under the program. Aggregate discount and fees of
approximately $4.7 million and $5.4 million for the three-month periods ended
June 30, 2001 and 2000, and $15.6 million and $10.4 million for the nine-month
periods, respectively, on the sold receivables are included in net interest
expense.
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Blanco Revolving Credit Facility
One of Bergen's subsidiaries has a $55 million bank revolving credit
facility which expires on May 20, 2002. Borrowings under the facility bear
interest at 0.35% above LIBOR and are secured by a standby letter of credit
under AmerisourceBergen's new credit facility for which AmerisourceBergen incurs
a fee of 1.625%.
Bergen Senior Notes
On December 1, 1992, Bergen filed a $400 million shelf registration
relating to debt securities which may be either senior or subordinated in
priority of payment. Also on December 1, 1992, Bergen entered into a senior
indenture (the "Indenture") with Chemical Trust Company of California, as senior
trustee. The senior notes set forth below were issued pursuant to the shelf
registration and the Indenture.
7 3/8% Senior Notes
On January 14, 1993, Bergen sold $150 million aggregate principal amount of
unsecured 7 3/8% Senior Notes due January 15, 2003. The 7 3/8% notes are not
redeemable prior to maturity and are not entitled to any sinking fund. Interest
on the 7 3/8% notes is payable semi-annually on January 15 and July 15 of each
year.
The Indenture contains covenants restricting Bergen's ability and the
ability of certain of Bergen's subsidiaries to incur or permit to exist liens on
their assets, except for permitted liens and to enter into sale and leaseback
transactions, except permitted sale and leaseback transactions.
The failure of Bergen and some of its subsidiaries to pay specific
indebtedness when due constitutes, among other things, an event of default under
the 7 3/8% notes and can lead to the acceleration of the payment of the 7 3/8%
notes.
7 1/4 % Senior Notes
On May 23, 1995, Bergen sold $100 million aggregate principal amount of
unsecured 7 1/4% Senior Notes due June 1, 2005. The 7 1/4% notes are not
redeemable prior to maturity and are not entitled to any sinking fund. Interest
on the 7 1/4% notes is payable semi-annually on June 1 and December 1 of each
year.
The Indenture contains covenants restricting Bergen's ability and the
ability of certain of Bergen's subsidiaries to incur or permit to exist liens on
their assets, except for permitted liens and to enter into sale and leaseback
transactions, except permitted sale and leaseback transactions. The failure of
Bergen and some of its subsidiaries to pay specific indebtedness when due
constitutes, among other things, an event of default under the 7 1/4% notes and
can lead to the acceleration of the payment of the 7 1/4% notes.
Durr-Fillauer 7% Convertible Subordinated Debentures
In connection with the acquisition of Durr-Fillauer Medical Inc. and
subsidiaries ("Durr") in September 1992, Bergen assumed $69 million of Durr's
unsecured 7% Convertible Subordinated Debentures due March 1, 2006. Since
September 1992, Bergen has redeemed $48.4 million aggregate principal amount
plus accrued interest. The remaining unredeemed 7% debentures receive interest
on March 1 and September 1 of each year.
Under the terms of the indenture governing these debentures, Bergen
commenced a change of control offer on the remaining debentures as a result of
the merger. The change of control offer expired on October 26, 2001.
AmeriSource 5% Convertible Subordinated Notes
In December 2000 AmeriSource issued $300 million of Convertible
Subordinated Notes due December 1, 2007 (the "AmeriSource notes"). The
AmeriSource notes have an annual interest rate of 5% and are payable
semiannually on June 1 and December 1 of each year. The AmeriSource notes are
convertible into Common Stock of AmerisourceBergen at $52.97 per share at any
time before their maturity or their prior redemption or repurchase by
AmeriSource. The AmeriSource notes are subordinated in right of payment to all
of AmeriSource's existing and future senior debt. AmeriSource's direct wholly-
owned subsidiary, AmeriSource Corporation, unconditionally guaranteed the
AmeriSource notes on a subordinated basis. Net proceeds from the AmeriSource
notes of
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approximately $290.7 million were used to repay existing borrowings of
AmeriSource, and for working capital and other general corporate purposes.
Upon the occurrence of specific changes in control of AmerisourceBergen,
each note holder has the right to require AmerisourceBergen to purchase all or a
portion of the note holder's AmeriSource notes at a price equal to 100% of the
aggregate principal amount of the Amerisource notes. The failure of
AmerisourceBergen and some of its subsidiaries to pay specific indebtedness when
due constitutes, among other things, an event of default under the AmeriSource
notes and can lead to the acceleration of the payment of the AmeriSource notes.
After the merger, AmerisourceBergen became a co-obligor under the AmeriSource
notes.
PharMerica 8 3/8% Senior Subordinated Notes
On June 25, 1999, PharMerica, Inc. ("PharMerica"), a wholly-owned
subsidiary of Bergen, completed an offer to purchase its unsecured 8 3/8% Senior
Subordinated Notes due 2008. Holders tendered an aggregate principal amount of
$16.9 million in response to PharMerica's offer to purchase the PharMerica notes
at a cash price equal to $1,010 per $1,000 principal amount, plus interest. The
offer was required as a result of the acquisition of PharMerica by Bergen on
April 26, 1999 according to the terms of the indenture under which the
PharMerica notes were issued.
PharMerica commenced a tender offer and consent solicitation for these
notes on July 17, 2001. See "The Merger and Related Transactions."
Approximately $184.6 million of PharMerica notes were tendered pursuant to the
tender offer. Pursuant to the terms of the indenture governing the PharMerica
notes, the consummation of the merger required us to make a change of control
offer to repurchase remaining outstanding notes at a purchase price equal to
101% of the outstanding principal amount thereof plus accrued and unpaid
interest to the date of redemption. The change of control offer expires on
October 29, 2001.
Bergen 6 7/8% Exchangeable Subordinated Debentures
In July 1986, Bergen issued $43 million of unsecured 6 7/8% Exchangeable
Subordinated Debentures due July 2011. During March 1990, $32.1 million
principal amount of the 6 7/8% debentures were tendered and purchased pursuant
to an offer from Bergen. Since March 1990, Bergen has redeemed an additional
$2.5 million aggregate principal amount plus accrued interest. The remaining
unredeemed 6 7/8% debentures receive interest on January 15 and July 15 of each
year.
The failure of Bergen and some of its subsidiaries to pay specific
indebtedness when due constitutes, among other things, an event of default under
the 6 7/8% debentures and can lead to the acceleration of the payment of the
6 7/8% debentures.
Bergen Trust Preferred Securities
During the year ended September 30, 1999, Bergen formed Bergen Capital I
(the "Trust") which was established to sell preferred securities to the public;
sell common securities to Bergen; use the proceeds from these sales to buy an
equal amount of subordinated debt securities of Bergen and distribute the cash
payments it receives on the subordinated debt securities it owns to the holders
of its preferred and common securities. In turn, Bergen will pay principal,
premium (if any) and interest on its subordinated debt securities and will
guarantee certain payments relating to the preferred securities. As of August
14, 2001, AmerisourceBergen also agreed to guarantee certain payments relating
to the preferred securities.
On May 26, 1999, the Trust, a wholly-owned subsidiary of Bergen, issued
12,000,000 shares of 7.80% Trust Originated Preferred Securities (SM)
(TOPrS(SM)) (the "Preferred Securities") at $25 per security. The proceeds of
such issuances were invested by the Trust in $300 million aggregate principal
amount of Bergen's 7.80% Subordinated Deferrable Interest Notes due June 30,
2039. Bergen used the net proceeds from the Trust for general corporate
purposes, principally retirement of a portion of its outstanding debt. The
subordinated notes represent the sole assets of the Trust and bear interest at
the annual rate of 7.80%, payable quarterly, and are redeemable by Bergen
beginning in May 2004 at 100% of the principal amount thereof. The obligations
of the Trust related to the Preferred Securities are fully and unconditionally
guaranteed by Bergen and AmerisourceBergen.
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Holders of the Preferred Securities are entitled to cumulative cash
distributions at an annual rate of 7.80% of the liquidation amount of $25 per
security beginning June 30, 1999. The Preferred Securities will be redeemable
upon any repayment of the Subordinated Notes at 100% of the liquidation amount
beginning in May 2004.
Bergen, under certain conditions, may cause the Trust to defer the payment
of distributions for successive periods of up to 20 consecutive quarters.
During such periods, accrued distributions on the Preferred Securities will
compound quarterly at an annual rate of 7.80%. Also, during such periods,
Bergen may not declare or pay distributions on its capital stock; may not
redeem, purchase or make a liquidation payment on any of its capital stock; and
may not make interest, principal or premium payments on, or repurchase or
redeem, any of its debt securities that rank equal with or junior to the
Subordinated Notes.
The subordinated notes and the related Trust investment in the subordinated
notes have been eliminated in consolidation and the Preferred Securities are
reflected as outstanding in Bergen's consolidated financial statements
incorporated by reference herein.
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description,
"AmerisourceBergen" refers only to AmerisourceBergen Corporation and not to any
of its subsidiaries.
AmerisourceBergen issued the notes under an indenture between itself and
Chase Manhattan Bank and Trust Company, National Association, as trustee, in a
private transaction that was not subject to the registration requirements of the
Securities Act. See "Notice to Investors." The terms of the notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939, as amended.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of these notes. Copies of the indenture and the
registration rights agreement are available as set forth below under "--
Additional Information." Certain defined terms used in this description but not
defined below under "--Certain Definitions" have the meanings assigned to them
in the indenture.
The registered Holder of a note will be treated as the owner of it for all
purposes. Only registered Holders will have rights under the indenture.
Brief Description of the Notes and the Guarantees
The notes:
. are general unsecured obligations of AmerisourceBergen;
. are pari passu in right of payment with any future unsecured senior
Indebtedness of AmerisourceBergen;
. are senior in right of payment to any future subordinated Indebtedness
of AmerisourceBergen; and
. are unconditionally guaranteed by each of the Domestic Subsidiaries of
AmerisourceBergen (other than the Designated Non-Guarantors).
However, the notes are effectively subordinated in right of payment to all
existing and future secured debt of AmerisourceBergen and the guarantors,
including all borrowings under the New Credit Facility. See "Risk Factors--Your
right to receive payments on the notes is effectively subordinated to our and
the subsidiary guarantors' existing and future secured indebtedness." Assuming
we had completed this offering of notes and applied the net proceeds as
intended, as of June 30, 2001, AmerisourceBergen would have had $413.8 million
of secured debt outstanding and an additional $825.8 million would have been
available for borrowing on a secured basis under the New Credit Facility. The
indenture will permit us to incur additional secured debt under certain
circumstances.
All of our subsidiaries are "Restricted Subsidiaries" and are guarantors,
except the Receivables Subsidiaries established in connection with our accounts
receivables securitization facilities, which are not Restricted Subsidiaries and
do not guarantee the notes, and except that the Designated Non-Guarantors do not
guarantee the notes. Under the circumstances described below under the
subheading "--Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our other
subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries are
not subject to many of the restrictive covenants in the indenture. Our
Unrestricted Subsidiaries do not guarantee the notes. The Designated Non-
Guarantors held less than 1% of our pro forma assets as of June 30, 2001 and
accounted for less than 1% of our pro forma operating revenue for the nine-month
period ended June 30, 2001.
Principal, Maturity and Interest
AmerisourceBergen issued the notes with a maximum aggregate principal
amount of $500.0 million. AmerisourceBergen may issue additional notes from
time to time after the initial offering. Any offering of
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additional notes is subject to the covenant described below under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock." The notes and any additional notes subsequently issued under the
indenture will be treated as a single class for all purposes under the
indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. AmerisourceBergen will issue notes in denominations of
$1,000 and integral multiples of $1,000. The notes will mature on September 1,
2008.
Interest on the notes will accrue at the rate of 8 1/8% per annum and will
be payable semi-annually in arrears on March 1 and September 1, commencing on
March 1, 2002. AmerisourceBergen will make each interest payment to the Holders
of record on the immediately preceding February 15 and August 15.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve 30-
day months.
Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to AmerisourceBergen,
AmerisourceBergen will pay, or cause to be paid, all principal, interest and
premium and Liquidated Damages, if any, on that Holder's notes in accordance
with those instructions. All other payments on notes will be made at the office
or agency of the paying agent and registrar within the City and State of New
York unless AmerisourceBergen elects to make interest payments by check mailed
to the Holders at their address set forth in the register of Holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar.
AmerisourceBergen may change the paying agent or registrar without prior notice
to the Holders of the notes, and AmerisourceBergen or any of its Subsidiaries
may act as paying agent or registrar.
Transfer and Exchange
A Holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents in connection with a
transfer of notes. AmerisourceBergen may require a Holder to pay all taxes and
fees required by law or permitted by the Indenture. AmerisourceBergen is not
required to transfer or exchange any note selected for redemption. Also,
AmerisourceBergen is not required to transfer or exchange any note for a period
of 15 days before a selection of notes to be redeemed.
Subsidiary Guarantees
The notes will be guaranteed by each of AmerisourceBergen's current and
future Domestic Subsidiaries, other than the Designated Non-Guarantors, pursuant
to the supplemental indenture that was executed and delivered at the time that
the Merger was consummated. These Subsidiary Guarantees are joint and several
obligations of the Guarantors. The obligations of each Guarantor under its
Subsidiary Guarantee is limited as necessary to prevent that Subsidiary
Guarantee from constituting a fraudulent conveyance under applicable law. See
"Risk Factors--Federal and State statutes allow courts, under specific
circumstances, to void guarantees and require noteholders to return payments
received from guarantors."
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than AmerisourceBergen
or another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition
or the Person formed by or surviving any such consolidation or
merger assumes all the obligations of that Guarantor under the
indenture, its Subsidiary Guarantee and the registration rights
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agreement pursuant to a supplemental indenture satisfactory to
the trustee or by operation of law; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or
after giving effect to such transaction) a Subsidiary of
AmerisourceBergen, if the sale or other disposition complies with the
"Asset Sale" provisions of the indenture;
(2) in connection with any sale of all of the Capital Stock of a Guarantor
to a Person that is not (either before or after giving effect to such
transaction) a Subsidiary of AmerisourceBergen, if the sale complies
with the "Asset Sale" provisions of the indenture; or
(3) if AmerisourceBergen designates a Guarantor to be an Unrestricted
Subsidiary in accordance with the indenture.
See "--Repurchase at the Option of Holders--Asset Sales."
Optional Redemption
The notes are not redeemable at the option of AmerisourceBergen except as
set forth in the following paragraph.
The notes may be redeemed, in whole or in part, at any time at the option
of AmerisourceBergen upon not less than 30 nor more than 60 days prior notice
mailed by first-class mail to each Holder's registered address, at a redemption
price equal to the greater of:
(1) 101% of the principal amount thereof; or
(2) as determined by an Independent Investment Banker, the sum of the
present values of the Remaining Scheduled Payments discounted to the
redemption date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Adjusted Treasury Rate,
plus, in each case, accrued and unpaid interest and Liquidated Damages, if any,
to the applicable date of redemption.
Unless AmerisourceBergen defaults in payment of the redemption price, on
and after the redemption date, interest will cease to accrue on the notes or
portion thereof called for redemption.
Mandatory Redemption
AmerisourceBergen is not required to make mandatory redemption or sinking
fund payments with respect to the notes except as provided below under "--
Repurchase at the Option of Holders."
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Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of notes will have the right to
require AmerisourceBergen to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that Holder's notes pursuant to a Change of
Control Offer on the terms set forth in the indenture. In the Change of Control
Offer, AmerisourceBergen will offer a Change of Control Payment in cash equal to
101% of the aggregate principal amount of notes repurchased plus accrued and
unpaid interest and Liquidated Damages, if any, on the notes repurchased, to the
date of purchase. Within 90 days following any Change of Control,
AmerisourceBergen will mail a notice to each Holder describing the transaction
or transactions that constitute the Change of Control and offering to repurchase
notes on the Change of Control Payment Date specified in the notice, which date
will be no earlier than 30 days and no later than 60 days from the date such
notice is mailed, pursuant to the procedures required by the indenture and
described in such notice. AmerisourceBergen will comply with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent those laws and regulations are applicable
in connection with the repurchase of the notes as a result of a Change of
Control. To the extent that the provisions of any securities laws or
regulations conflict with the Change of Control provisions of the indenture,
AmerisourceBergen will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Change of Control provisions of the indenture by virtue of such conflict.
On the Change of Control Payment Date, AmerisourceBergen will, to the
extent lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all notes or portions of notes properly
tendered; and
(3) deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions of notes being purchased by
AmerisourceBergen.
The paying agent will promptly mail to each Holder of notes properly
tendered the Change of Control Payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
The provisions described above that require AmerisourceBergen to make a
Change of Control Offer following a Change of Control will be applicable whether
or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the Holders of the notes to require that
AmerisourceBergen repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
AmerisourceBergen will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by
AmerisourceBergen and purchases all notes properly tendered and not withdrawn
under the Change of Control Offer.
The agreements governing AmerisourceBergen's other debt currently prohibit
AmerisourceBergen from purchasing any notes, and also provides that certain
change of control or asset sale events with respect to AmerisourceBergen would
constitute a default under those agreements. Any future credit agreements or
other agreements relating to other senior debt to which AmerisourceBergen
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control or Asset Sale occurs at a time when AmerisourceBergen is
prohibited from purchasing notes, AmerisourceBergen could seek the consent of
its other lenders to the purchase of notes or could attempt to refinance the
borrowings that contain such prohibition. If
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AmerisourceBergen does not obtain such a consent or repay such borrowings,
AmerisourceBergen will remain prohibited from purchasing notes. In such case,
AmerisourceBergen's failure to purchase tendered notes would constitute an Event
of Default under the indenture which could, in turn, constitute a default under
such secured debt.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of AmerisourceBergen and
its Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of notes to require AmerisourceBergen to repurchase its notes as a result
of a sale, lease, transfer, conveyance or other disposition of less than all of
the assets of AmerisourceBergen and its Subsidiaries taken as a whole to another
Person or group may be uncertain.
Asset Sales
AmerisourceBergen will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) AmerisourceBergen (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least equal to
the fair market value of the assets or Equity Interests issued or sold
or otherwise disposed of;
(2) the fair market value is determined by AmerisourceBergen's Board of
Directors and evidenced by a resolution of the Board of Directors set
forth in an officers' certificate delivered to the trustee; and
(3) at least 75% of the consideration received in the Asset Sale by
AmerisourceBergen or such Restricted Subsidiary is in the form of
cash; provided that this 75% limitation shall not apply to any Asset
Sale in which the after-tax cash or Cash Equivalents portion of the
consideration received is equal or greater than what the net after-tax
proceeds would have been had such Asset Sale complied with the 75%
limitation.
For purposes of this provision, each of the following will be deemed to be
cash:
(a) any liabilities, as shown on AmerisourceBergen's or such
Restricted Subsidiary's most recent balance sheet, of
AmerisourceBergen or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms
subordinated to the notes or any Subsidiary Guarantee) that are
assumed by the transferee of any such assets;
(b) any securities, notes or other obligations received by
AmerisourceBergen or any such Restricted Subsidiary from such
transferee that are delivered within 20 days of the sale, subject
to ordinary settlement periods, converted by AmerisourceBergen or
such Restricted Subsidiary into cash, to the extent of the cash
received in that conversion;
(c) any payment of secured debt secured by the assets sold in the
Asset Sale;
(d) Cash Equivalents;
(e) long-term assets that are used or useful in a Permitted Business;
and
(f) the Capital Stock of any Person engaged in a Permitted Business
if, in connection with the receipt by AmerisourceBergen or any
Restricted Subsidiary of AmerisourceBergen of such Capital Stock
(i) such Person becomes a Restricted Subsidiary of
AmerisourceBergen or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, AmerisourceBergen or
any Restricted Subsidiary of AmerisourceBergen.
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Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
AmerisourceBergen may apply those Net Proceeds at its option to one or more of
the following:
(1) to repay Indebtedness under a Credit Facility (and to effect a
corresponding commitment reduction if such Indebtedness is revolving
credit Indebtedness);
(2) to acquire (or enter into a binding agreement to acquire, provided
that such commitment shall be subject only to customary conditions
(other than financing) and such acquisition shall be consummated
within 180 days after the end of such 365-day period) all or
substantially all of the assets of, or a majority of the Voting Stock
of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire (or enter into a binding agreement to acquire, provided
that such commitment shall be subject only to customary conditions
(other than financing) and such acquisition shall be consummated
within 180 days after the end of such 365-day period) other long-term
assets that are used or useful in a Permitted Business.
Pending the final application of any Net Proceeds, AmerisourceBergen may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $50.0 million, AmerisourceBergen
will make an Asset Sale Offer to all Holders of notes and all holders of other
Indebtedness that is pari passu with the notes containing provisions similar to
those set forth in the indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets to purchase the maximum principal amount of
notes and such other pari passu Indebtedness that may be purchased out of the
Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100%
of principal amount plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase, and will be payable in cash. If any Excess
Proceeds remain after consummation of an Asset Sale Offer, AmerisourceBergen may
use those Excess Proceeds for any purpose not otherwise prohibited by the
indenture. If the aggregate principal amount of notes and other pari passu
Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds, the trustee will select the notes and such other pari passu
Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset
Sale Offer, the amount of Excess Proceeds will be reset at zero.
AmerisourceBergen will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of the indenture, AmerisourceBergen will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of such
conflict.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(2) if the notes are not listed on any national securities exchange, on a
pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.
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No notes of $1,000 or less can be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of notes to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior to
a redemption date if the notice is issued in connection with a defeasance of the
notes or a satisfaction and discharge of the indenture. Notices of redemption
may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the Holder of notes
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
Certain Covenants
The indenture contains the following provisions relating to covenants.
Changes in Covenants when Notes Rated Investment Grade
If on any date following the date of the indenture:
(1) the notes are rated Baa3 or better by Moody's and BBB- or better by
S&P (or, in either case, if such person ceases to rate the notes for
reasons outside of the control of AmerisourceBergen, the equivalent
investment grade credit rating from any other "nationally recognized
statistical rating organization" within the meaning of Rule 15c3-
1(c)(2)(vi)(F) under the Exchange Act selected by AmerisourceBergen as
a replacement agency) (such date being the "Rating Event Date"); and
(2) no Default or Event of Default shall have occurred and be continuing,
then, beginning on that day and continuing at all times thereafter regardless of
any changes in the rating of the notes, the covenants specifically listed under
the following captions in this prospectus will no longer be applicable to the
notes:
(1) "--Repurchase at the Option of Holders-Asset Sales;"
(2) "--Restricted Payments;"
(3) "--Incurrence of Indebtedness and Issuance of Preferred Stock;"
(4) "--Dividend and Other Payment Restrictions Affecting Subsidiaries;"
(5) "--Designation of Restricted and Unrestricted Subsidiaries;"
(6) "--Transactions with Affiliates;" and
(7) clause (4)(b) of the covenant listed under "--Merger, Consolidation or
Sale of Assets."
There can be no assurance that a Rating Event Date will occur or, if one
occurs, that the notes will continue to maintain an investment grade rating.
Restricted Payments
AmerisourceBergen will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of AmerisourceBergen's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving
AmerisourceBergen or any of its Restricted Subsidiaries) or to the
direct or indirect holders of
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AmerisourceBergen's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified
Stock) of AmerisourceBergen or to AmerisourceBergen or a Restricted
Subsidiary of AmerisourceBergen);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving AmerisourceBergen) any Equity Interests of AmerisourceBergen
or any direct or indirect parent of AmerisourceBergen (other than
Equity Interests owned by AmerisourceBergen or any Restricted
Subsidiary of AmerisourceBergen);
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or any guarantee of the notes (other than
Indebtedness between or among AmerisourceBergen and its Restricted
Subsidiaries), except a payment of interest or principal at the Stated
Maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions
set forth in these clauses (1) through (4) above being collectively
referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or would
occur as a consequence of such Restricted Payment; and
(2) AmerisourceBergen would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described below under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by AmerisourceBergen and its Restricted
Subsidiaries after the date of the indenture (excluding Restricted
Payments permitted by clauses (2), (3), (4), (8) and (10) of the next
succeeding paragraph), is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of AmerisourceBergen for the
period (taken as one accounting period) from the beginning of the
fiscal quarter in which the date of the indenture falls to the
end of AmerisourceBergen's most recently ended fiscal quarter for
which internal financial statements are available at the time of
such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by
AmerisourceBergen since the date of the indenture as a
contribution to its common equity capital or from the issue or
sale of Equity Interests of AmerisourceBergen (other than
Disqualified Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable
debt securities of AmerisourceBergen that have been converted
into or exchanged for such Equity Interests (other than Equity
Interests (or Disqualified Stock or debt securities) sold to a
Subsidiary of AmerisourceBergen), plus
(c) to the extent that any Restricted Investment that was made after
the date of the indenture is sold for cash or otherwise
liquidated or repaid for cash, the cash return of capital with
respect to such Restricted Investment (less the cost of
disposition, if any), plus
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(d) if any Unrestricted Subsidiary (i) is redesignated as a
Restricted Subsidiary, the fair market value of such redesignated
Subsidiary (as determined in good faith by the board of directors
of AmerisourceBergen) as of the date of its redesignation or (ii)
pays any cash dividends or cash distributions to
AmerisourceBergen or any of its Restricted Subsidiaries, the
amount of any such dividends or distributions made after the date
of the indenture.
The preceding provisions will not prohibit any of the following:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the
dividend payment would have complied with the provisions of the
indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of AmerisourceBergen or
any Restricted Subsidiary or of any Equity Interests of
AmerisourceBergen in exchange for, or out of the net cash proceeds of
the substantially concurrent sale or issuance (other than to a
Subsidiary of AmerisourceBergen) of, Equity Interests of
AmerisourceBergen (other than Disqualified Stock) or from the net cash
proceeds of an equity capital contribution to AmerisourceBergen;
provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance
or other acquisition will be excluded from clause (3) (b) of the
preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of AmerisourceBergen or any Restricted
Subsidiary with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness, so long as no Default has occurred and is
continuing or would be caused thereby;
(4) the payment of any dividend by a Restricted Subsidiary of
AmerisourceBergen to the holders of its Equity Interests on a pro rata
basis;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of AmerisourceBergen or any Restricted
Subsidiary of AmerisourceBergen held by any member of
AmerisourceBergen's (or any of its Restricted Subsidiaries')
management pursuant to any management equity subscription agreement,
stock option agreement or similar agreement, so long as no Default has
occurred and is continuing or would be caused thereby; provided that
the aggregate price paid for all such repurchased, redeemed, acquired
or retired Equity Interests may not exceed $10.0 million in any
twelve-month period;
(6) the declaration or payment of dividends or advances to
AmerisourceBergen for expenses incurred by AmerisourceBergen in its
capacity as a holding company that are attributable to the operations
of AmerisourceBergen and its Restricted Subsidiaries;
(7) the repurchase of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the
exercise price of such options;
(8) the defeasance, redemption, repurchase or other acquisition of any
Indebtedness subordinated or pari passu in right of payment to the
notes at a purchase price not greater than 101% of the principal
amount of such Indebtedness, plus any accrued and unpaid interest
thereon, in the event of a Change of Control; provided that prior to
or contemporaneously with such repurchase, AmerisourceBergen has made
the Change of Control Offer with respect to the notes required by the
indenture and has repurchased all notes validly tendered for payment
and not withdrawn in connection with such Change of Control Offer;
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(9) other Restricted Payments in an aggregate amount not to exceed $50.0
million; or
(10) The use of the proceeds from the offering of the old notes.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by AmerisourceBergen or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be valued
by this covenant will be determined by the board of directors of
AmerisourceBergen, whose determination will be conclusive. For purposes of
determining compliance with this covenant, in the event that a Restricted
Payment meets the criteria of more than one of the exceptions described in (1)
through (9) above or is entitled to be made pursuant to the first paragraph of
this covenant, AmerisourceBergen shall, in its sole discretion, classify such
Restricted Payment in any manner that complies with this covenant.
No Senior Subordinated Debt
Notwithstanding the provisions of the "Restricted Payments" Covenant (i)
AmerisourceBergen shall not incur any Indebtedness that is subordinate or junior
in right of payment to any Senior Debt and senior in any respect in right of
payment to the notes, and (ii) no Guarantor shall incur any Indebtedness that is
subordinated or junior in right of payment to any Guarantees of Senior Debt and
senior in any respect in right of payment to the Guarantees.
Incurrence of Indebtedness and Issuance of Preferred Stock
AmerisourceBergen will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and AmerisourceBergen will not issue any Disqualified Stock and will not
permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that AmerisourceBergen or any Guarantor may incur
Indebtedness (including Acquired Debt) or issue Disqualified Stock and the
Guarantors may issue preferred stock, if the Fixed Charge Coverage Ratio for
AmerisourceBergen's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock or
preferred stock is issued would have been at least 2.25 to 1, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock or preferred stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by AmerisourceBergen and its Restricted Subsidiaries of
additional Indebtedness and letters of credit under Credit Facilities
in an aggregate principal amount at any one time outstanding under
this clause (1) (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of
AmerisourceBergen and its Restricted Subsidiaries thereunder) not to
exceed the greater of:
(a) $1.4 billion less the aggregate amount of all Net Proceeds of
Asset Sales that have been applied by AmerisourceBergen or any of
its Restricted Subsidiaries since the date of the indenture to
repay any term Indebtedness under a Credit Facility or to repay
revolving credit Indebtedness under a Credit Facility and effect
a corresponding commitment reduction, in each case with the Net
Proceeds of an Asset Sale pursuant to the covenant described
above under the caption "--Repurchase at the Option of Holders--
Asset Sales" and
(b) the Borrowing Base;
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(2) the incurrence by AmerisourceBergen and its Restricted Subsidiaries of
the Existing Indebtedness and their existing guarantees;
(3) the incurrence by AmerisourceBergen and the Guarantors of Indebtedness
represented by the notes issued on the date of the indenture and the
guarantees issued pursuant to the pledge and escrow agreement and the
Exchange Notes and the related Subsidiary Guarantees issued pursuant
to the registration rights agreement;
(4) the incurrence by AmerisourceBergen or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was permitted
by the indenture to be incurred under the first paragraph of this
covenant or clauses (2), (3), (4) or (15) of this paragraph;
(5) the incurrence by AmerisourceBergen or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among
AmerisourceBergen and any of its Restricted Subsidiaries; provided,
however, that:
(a) if AmerisourceBergen or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to
the prior payment in full in cash of all Obligations with respect
to the notes, in the case of AmerisourceBergen, or the Subsidiary
Guarantee, in the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other
than AmerisourceBergen or a Restricted Subsidiary of
AmerisourceBergen and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either AmerisourceBergen or
a Restricted Subsidiary of AmerisourceBergen; will be deemed, in
each case, to constitute an incurrence of such Indebtedness by
AmerisourceBergen or such Restricted Subsidiary, as the case may
be, that was not permitted by this clause (5);
(6) the incurrence by AmerisourceBergen or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose
of fixing or hedging interest rate risk with respect to any floating
rate Indebtedness that is permitted by the terms of the indenture to
be outstanding or Hedging Obligations with respect to foreign currency
transactions;
(7) the guarantee by AmerisourceBergen or any of the Guarantors of
Indebtedness of AmerisourceBergen or a Restricted Subsidiary of
AmerisourceBergen that was permitted to be incurred by another
provision of this covenant or that was in existence on the date of the
indenture;
(8) the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction that is without recourse to
AmerisourceBergen or to any Restricted Subsidiary of AmerisourceBergen
or their assets (other than such Receivables Subsidiary and its assets
and, as to AmerisourceBergen or any Subsidiary of AmerisourceBergen,
other than pursuant to representations, warranties, covenants and
indemnities customary for such transactions) and is not guaranteed by
any such Person;
(9) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, and the payment
of dividends on Disqualified Stock in the form of additional shares of
the same class of
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Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant;
(10) Indebtedness of AmerisourceBergen or a Restricted Subsidiary owed to
(including obligations in respect of letters of credit for the benefit
of) any Person in connection with worker's compensation, health,
disability or other employee benefits or property, casualty or
liability insurance provided by such Person to AmerisourceCredit or
such Restricted Subsidiary, pursuant to reimbursement or
indemnification obligations to such Person, in each case incurred in
the ordinary course of business;
(11) Indebtedness arising from agreements of AmerisourceBergen or a
Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, asset or
Equity Interests; provided that the maximum aggregate liability of all
such Indebtedness shall at not time exceed the gross proceeds actually
received by AmerisourceBergen and its Restricted Subsidiaries in
connection with such disposition;
(12) obligations in respect of performance and surety bonds and completion
guarantees provided by AmerisourceBergen or any Restricted Subsidiary
in the ordinary course of business;
(13) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business, provided,
however, that such Indebtedness is extinguished within five Business
Days of its incurrence;
(14) the incurrence by AmerisourceBergen or any of its Restricted
Subsidiaries of guarantees of Indebtedness of customers or suppliers
in an aggregate amount at any one time outstanding not to exceed $20.0
million; and
(15) the incurrence by AmerisourceBergen or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal
amount (or accreted value, as applicable) at any time outstanding,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause
(15), not to exceed $80.0 million.
AmerisourceBergen will not incur any Indebtedness (including Permitted
Debt) that is contractually subordinated in right of payment to any other
Indebtedness of AmerisourceBergen unless such Indebtedness is also contractually
subordinated in right of payment to the notes on substantially identical terms;
provided, however, that no Indebtedness of AmerisourceBergen will be deemed to
be contractually subordinated in right of payment to any other Indebtedness of
AmerisourceBergen solely by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (15) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant,
AmerisourceBergen will, in its sole discretion, be permitted to classify such
item of Indebtedness on the date of its incurrence, or later reclassify all or a
portion of such item of Indebtedness, in any manner that complies with this
covenant. Indebtedness under Credit Facilities outstanding on the date on which
notes are first issued and authenticated under the indenture will be deemed to
have been incurred on such date in reliance on the exception provided by clause
(1) of the definition of Permitted Debt.
Liens
AmerisourceBergen will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind securing Indebtedness on any asset now owned or
hereafter acquired, except Permitted Liens, unless (i) in the case of
AmerisourceBergen, the notes are secured by such Lien equally and ratably with,
or prior to, the Indebtedness secured by such Lien or (ii) in the case of any
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Subsidiary Guarantor, such Subsidiary Guarantor's guarantee of the notes is
secured by such Lien equally and ratably with, or prior to, the Indebtedness
secured by such Lien.
Dividend and Other Payment Restrictions Affecting Subsidiaries
AmerisourceBergen will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
AmerisourceBergen or any of its Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to AmerisourceBergen or any of
its Restricted Subsidiaries;
(2) make loans or advances to AmerisourceBergen or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to AmerisourceBergen or any
of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness and Credit Facilities as in
effect on the date of the indenture and any amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings of those agreements, provided that the
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are not
materially more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in those
agreements on the date of the indenture;
(2) the indenture, the notes and the Subsidiary Guarantees;
(3) applicable law and any applicable rule, regulation or order;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by AmerisourceBergen or any of its Restricted Subsidiaries as
in effect at the time of such acquisition (except to the extent such
Indebtedness or Capital Stock was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the indenture to be
incurred;
(5) customary non-assignment provisions in leases or other similar
agreements entered into in the ordinary course of business and
consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on that property of the
nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary or all or substantially all the assets of such Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending such sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole,
than those contained in the agreements governing the Indebtedness
being refinanced;
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(9) Liens securing Indebtedness otherwise permitted to be incurred under
the provisions of the covenant described above under the caption "--
Liens" that limit the right of the debtor to dispose of the assets
subject to such Liens;
(10) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, assets sale agreements,
stock sale agreements and other similar agreements entered into in
the ordinary course of business;
(11) Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction,
provided that such restrictions apply only to such Receivables
Subsidiary or the receivables or inventory which are subject to the
Qualified Receivables Transaction;
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(13) contractual encumbrances and restrictions in effect on the date of
the indenture;
(14) mortgage or construction financing that imposes restrictions on
transfer of the property acquired or improved;
(15) protective liens filed in connection with sale-leaseback transactions
permitted under "--Sale and Leaseback Transactions;" and
(16) Indebtedness permitted to be incurred pursuant to clauses (13), (14)
and (15) of the second paragraph of the covenant "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
Merger, Consolidation or Sale of Assets
AmerisourceBergen may not, directly or indirectly: (i) consolidate or merge
with or into another Person (whether or not AmerisourceBergen is the surviving
corporation) or (ii) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of AmerisourceBergen and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person, unless:
(1) either: (a) AmerisourceBergen is the surviving corporation; or (b)
the Person formed by or surviving any such consolidation or merger
(if other than AmerisourceBergen) or to which such sale, assignment,
transfer, conveyance or other disposition has been made is a
corporation organized or existing under the laws of the United
States, any state of the United States or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than AmerisourceBergen) or the Person to which such sale,
assignment, transfer, conveyance or other disposition has been made
assumes all the obligations of AmerisourceBergen under the notes, the
indenture and the registration rights agreement pursuant to
agreements reasonably satisfactory to the trustee;
(3) immediately after such transaction, no Default or Event of Default
exists; and
(4) AmerisourceBergen or the Person formed by or surviving any such
consolidation or merger (if other than AmerisourceBergen), or to
which such sale, assignment, transfer, conveyance or other
disposition has been made:
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(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth
of AmeriSource Bergen immediately preceding the transaction; and
(b) will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the
same had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock."
In addition, AmerisourceBergen may not, directly or indirectly, lease all
or substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, merger, assignment, transfer,
conveyance or other disposition of assets between or among AmerisourceBergen and
any of its Restricted Subsidiaries.
Designation of Restricted and Unrestricted Subsidiaries
The board of directors of AmerisourceBergen may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if that designation would not cause
a Default. If a Restricted Subsidiary is designated as an Unrestricted
Subsidiary, the aggregate fair market value of all outstanding Investments owned
by AmerisourceBergen and its Restricted Subsidiaries in the Subsidiary properly
designated will be deemed to be an Investment made as of the time of the
designation and will reduce the amount available for Restricted Payments under
the first paragraph of the covenant described above under the caption "--
Restricted Payments" or Permitted Investments, as determined by
AmerisourceBergen. That designation will only be permitted if the Investment
would be permitted at that time and if the Restricted Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary. The board of directors may
redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the
redesignation would not cause a Default.
Transactions with Affiliates
AmerisourceBergen will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to occur any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (an "Affiliate
Transaction"), other than Affiliate Transactions on terms that are not
materially less favorable to AmerisourceBergen or the relevant subsidiary than
those that might reasonably have been obtained in a comparable transaction at
such time on an arm's length basis from a Person that is not an Affiliate of
AmerisourceBergen or such Restricted Subsidiary; provided, however, that for an
Affiliate Transaction with an aggregate value of $25.0 million or more, at
AmerisourceBergen's option, either:
(1) a majority of the disinterested members of the board of directors of
AmerisourceBergen shall determine in good faith that such Affiliate
Transaction is on terms that are not materially less favorable than
those that might reasonably have been obtained in a comparable
transaction at such time on an arm's length basis from a Person that
is not an Affiliate of AmerisourceBergen; or
(2) the board of directors of AmerisourceBergen or any such Restricted
Subsidiary to such Affiliate Transaction shall obtain an opinion from
a nationally recognized investment banking, appraisal or accounting
firm that such Affiliate Transaction is on terms that are not
materially less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's length
basis from a Person that is not an Affiliate of AmerisourceBergen.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
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(1) any employment agreement, compensation or employee benefit
arrangements, incentive arrangements or director fees (including
grants of stock, stock options or other Equity Interests) entered into
by AmerisourceBergen or any of its Restricted Subsidiaries in the
ordinary course of business;
(2) transactions between or among AmerisourceBergen and/or its Restricted
Subsidiaries;
(3) transactions with a Person that is an Affiliate of AmerisourceBergen
solely because AmerisourceBergen owns an Equity Interest in, or
controls, such Person;
(4) payment of reasonable directors fees;
(5) sales or issuances of Equity Interests (other than Disqualified Stock)
to Affiliates of AmerisourceBergen;
(6) transactions between or among AmerisourceBergen and/or its Restricted
Subsidiaries or transactions between a Receivables Subsidiary and any
Person in which the Receivables Subsidiary has an Investment;
(7) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "--Restricted Payments;"
(8) customary loans, advances, fees and compensation paid to, and
indemnity provided on behalf of, officers, directors, employees or
consultant of AmerisourceBergen or any of its Restricted Subsidiaries;
or
(9) transactions pursuant to any contract or agreement in effect on the
date of the indenture as the same may be amended, modified or replaced
from time to time so long as any such amendment, modification or
replacement is no less favorable to AmerisourceBergen and its
Restricted Subsidiaries than the original contract or agreement as in
effect on the date of the indenture.
Additional Subsidiary Guarantees
If AmerisourceBergen or any of its Subsidiaries acquires or creates another
Domestic Subsidiary after the date of the indenture or if any Restricted
Subsidiary becomes a Domestic Subsidiary, then that newly acquired or created
Domestic Subsidiary will become a Guarantor and execute a supplemental indenture
and deliver an opinion of counsel satisfactory to the trustee within 10 Business
Days of the date on which it was acquired or created or became a Domestic
Subsidiary, provided, however, that all Subsidiaries that have properly been
designated as Unrestricted Subsidiaries or Designated Non-Guarantors in
accordance with the indenture for so long as they continue to constitute
Unrestricted Subsidiaries or Designated Non-Guarantors will not have to comply
with the requirements of this covenant.
Sale and Leaseback Transactions
AmerisourceBergen will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
AmerisourceBergen or any Guarantor may enter into a sale and leaseback
transaction if:
(1) AmerisourceBergen or that Guarantor, as applicable, could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Fixed Charge
Coverage Ratio test in the first paragraph of the covenant described
above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant described above under the caption "--Liens;"
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(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by
the board of directors and set forth in an officers' certificate
delivered to the trustee, of the property that is the subject of that
sale and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and AmerisourceBergen applies the proceeds of such
transaction in compliance with, the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales."
Payments for Consent
AmerisourceBergen will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indenture or the notes unless such consideration is offered to be paid
and is paid to all Holders of the notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Reports
Whether or not required by the SEC, so long as any notes are outstanding,
AmerisourceBergen will furnish to the Holders of notes, within the time periods
specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if
AmerisourceBergen were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information
only, a report on the annual financial statements by
AmerisourceBergen's certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if AmerisourceBergen were required to file such reports.
In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement, whether or not required by the SEC,
AmerisourceBergen will file a copy of all of the information and reports
referred to in clauses (1) and (2) above with the SEC for public availability
within the time periods specified in the SEC's rules and regulations (unless the
SEC will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition,
AmerisourceBergen has agreed that, for so long as any notes remain outstanding,
it will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d) (4) under the Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the notes;
(2) default in payment when due of the principal of, or premium, if any,
on the notes;
(3) failure by AmerisourceBergen or any of its Restricted Subsidiaries for
30 days from receipt of written notice by the trustee or the Holders
of at least 25% of the principal amount of the notes outstanding to
comply with the provisions described under the captions "--Repurchase
at the Option of Holders--Change of Control," "--Certain Covenants--
Restricted Payments" or "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock;"
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(4) failure by AmerisourceBergen or any of its Restricted Subsidiaries for
60 days after written notice by the trustee or the Holders of at least
25% of the principal amount of the notes outstanding to comply with
any of the other agreements in the indenture;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by AmerisourceBergen or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
AmerisourceBergen or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of
the indenture, if that default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of
such default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which
has been so accelerated, aggregates $25.0 million or more;
(6) failure by AmerisourceBergen or any of its Subsidiaries to pay final
judgments aggregating in excess of $25.0 million (net of any amount
covered by insurance), which judgments are not paid, discharged or
stayed pending appeal (or otherwise stayed) for a period of 60 days;
(7) failure to comply with, or the breach of, any material provision of
the pledge and escrow agreement, provided that the invalidity of the
trustee's security interest in the assets contained in the pledge and
escrow account will automatically constitute an Event of Default;
(8) except as permitted by the indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny
or disaffirm its obligations under its Subsidiary Guarantee; or
(9) certain events of bankruptcy or insolvency described in the indenture
with respect to AmerisourceBergen, any of its Significant
Subsidiaries, or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to AmerisourceBergen, any Restricted
Subsidiary that is a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding notes will become due and payable immediately without further
action or notice. If any other Event of Default occurs and is continuing, the
trustee or the Holders of at least 25% in principal amount of the then
outstanding notes may declare all the notes to be due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from Holders of the
notes notice of any continuing Default or Event of Default if it determines that
withholding notes is in their interest, except a Default or Event of Default
relating to the payment of principal or interest or Liquidated Damages.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest or Liquidated Damages on, or the principal of, the notes.
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AmerisourceBergen is required to deliver to the trustee annually a
statement regarding compliance with the indenture. Upon becoming aware of any
Default or Event of Default, AmerisourceBergen is required to deliver to the
trustee a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of
AmerisourceBergen or any Guarantor, as such, will have any liability for any
obligations of AmerisourceBergen or the Guarantors under the notes, the
indenture, the Subsidiary Guarantees, or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of notes by
accepting a note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
AmerisourceBergen may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding notes and all
obligations of the Guarantors discharged with respect to their Subsidiary
Guarantees ("Legal Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium and Liquidated
Damages, if any, on such notes when such payments are due from the
trust referred to below;
(2) AmerisourceBergen's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed,
lost or stolen notes and the maintenance of an office or agency for
payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
AmerisourceBergen's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, AmerisourceBergen may, at its option and at any time, elect to
have the obligations of AmerisourceBergen and the Restricted Subsidiaries
released with respect to certain covenants that are described in the indenture
("Covenant Defeasance") and thereafter any omission to comply with those
covenants will not constitute a Default or Event of Default with respect to the
notes. In the event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "--Events of Default and Remedies" will no longer constitute an
Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) AmerisourceBergen must irrevocably deposit with the trustee, in trust,
for the benefit of the Holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in U.S.
dollars and non-callable Government Securities, in amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest
and premium, if any, on the outstanding notes on the stated maturity
or on the applicable redemption date, as the case may be, and
AmerisourceBergen must specify whether the notes are being defeased to
maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, AmerisourceBergen has delivered to
the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that (a) AmerisourceBergen has received from, or there has
been published by, the Internal Revenue Service a ruling or (b) since
the date of the indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel will confirm that, subject to
customary assumptions and exceptions, the Holders of the outstanding
notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
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federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, AmerisourceBergen has delivered to
the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that, subject to customary assumptions and exceptions, the
Holders of the outstanding notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default has occurred and is continuing on the
date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which
AmerisourceBergen or any of its Subsidiaries is a party or by which
AmerisourceBergen or any of its Subsidiaries is bound;
(6) AmerisourceBergen must deliver to the trustee an officers' certificate
stating that the deposit was not made by AmerisourceBergen with the
intent of preferring the Holders of notes over the other creditors of
AmerisourceBergen with the intent of defeating, hindering, delaying or
defrauding creditors of AmerisourceBergen or others; and
(7) AmerisourceBergen must deliver to the trustee an officers' certificate
and an opinion of counsel, subject to customary assumptions and
exceptions, each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes
(other than provisions relating to the covenants described above under
the caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of Interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium or Liquidated Damages, if any, on the notes
(except a rescission of acceleration of the notes by the Holders of at
least a majority in aggregate principal amount of the notes and a
waiver of the payment default that resulted from such acceleration);
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(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of Holders of notes to receive payments
of principal of, or interest or premium or Liquidated Damages, if any,
on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations under its Subsidiary
Guarantee or the indenture, except in accordance with the terms of the
indenture; or
(9) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder of notes,
AmerisourceBergen, the Guarantors and the trustee may amend or supplement the
indenture, the Guarantees or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of AmerisourceBergen's obligations to
Holders of notes in the case of a merger or consolidation or sale of
all or substantially all of AmerisourceBergen's assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders of notes or that does not adversely affect the
legal rights under the indenture of any such Holder; or
(5) to comply with requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for
whose payment money has been deposited in trust and thereafter
repaid to AmerisourceBergen, have been delivered to the trustee
for cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the mailing
of a notice of redemption or otherwise or will become due and
payable within one year and AmerisourceBergen or any Guarantor
has irrevocably deposited or caused to be deposited with the
trustee as trust funds in trust solely for the benefit of the
Holders, cash in U.S. dollars, non-callable Government
Securities, or a combination of cash in U.S. dollars and non-
callable Government Securities, in amounts as will be sufficient
without consideration of any reinvestment of interest, to pay and
discharge the entire indebtedness on the notes not delivered to
the trustee for cancellation for principal, premium and
Liquidated Damages, if any, and accrued interest to the date of
maturity or redemption;
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(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other material agreement or instrument to which
AmerisourceBergen or any Guarantor is a party or by which
AmerisourceBergen or any Guarantor is bound;
(3) AmerisourceBergen or any Guarantor has paid or caused to be paid all
sums payable by it under the indenture; and
(4) AmerisourceBergen has delivered irrevocable instructions to the
trustee under the indenture to apply the deposited money toward the
payment of the notes at maturity or the redemption date, as the case
may be.
In addition, AmerisourceBergen must deliver an officers' certificate and an
opinion of counsel, subject to customary assumptions and exceptions, to the
trustee stating that all conditions precedent to satisfaction and discharge have
been satisfied.
Concerning the Trustee
If the trustee becomes a creditor of AmerisourceBergen or any Guarantor,
the indenture limits its right to obtain payment of claims in certain cases, or
to realize on certain property received in respect of any such claim as security
or otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the SEC for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
specified exceptions. The indenture provides that in case an Event of Default
occurs and is continuing, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder of notes, unless such Holder has offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to AmerisourceBergen
Corporation, Attention: Secretary.
Book-Entry, Delivery and Form
The new notes will be in the form of one or more registered global notes
without interest coupons (collectively, the "Global Notes"). Upon issuance, the
Global Notes will be deposited with the Trustee, as custodian for DTC, in New
York, New York, and registered in the name of DTC or its nominee, in each case
for credit to the accounts of DTC's Participants and Indirect Participants (as
defined below).
The Global Notes may be transferred, in whole or in part, only to another
nominee of DTC or to a successor of DTC or its nominee in certain limited
circumstances. Beneficial interests in the Global Notes may be exchanged for
notes in certificated form in certain limited circumstances.
Initially, the Trustee will act as Paying Agent and Registrar. The notes
may be presented for registration or transfer and exchange at the offices of the
Registrar.
Depository Procedures
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
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settlement systems and are subject to changes by them. AmerisourceBergen takes
no responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised AmerisourceBergen that DTC is a limited-purpose trust
company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised AmerisourceBergen that, pursuant to procedures
established by it:
(1) upon deposit of the Global Notes, DTC credits the accounts of
Participants designated by the Initial Purchasers of the old notes
with portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes is shown on, and the
transfer of ownership of these interests is effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other
owners of beneficial interest in the Global Notes).
Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Cedel) which are Participants in such
system. Investors in the Regulation S Global Notes must initially hold their
interests therein through Euroclear or Cedel, if they are participants in such
systems, or indirectly through organizations that are participants in such
systems. After the expiration of the Restricted Period (but not earlier),
investors may also hold interests in the Regulation S Global Notes through
Participants in the DTC system other than Euroclear and Cedel. Euroclear and
Cedel will hold interests in the Regulation S Global Notes on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective depositories, which are Morgan Guaranty Trust
Company of New York, Brussels office, as operator of Euroclear, and Citibank,
N.A., as operator of Cedel. All interests in a Global Note, including those
held through Euroclear or Cedel, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Cedel may also
be subject to the procedures and requirements of such systems. The laws of some
states require that certain Persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such Persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants, the ability of a Person having beneficial interests in
a Global Note to pledge such interests to Persons that do not participate in the
DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interest in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the indenture. Under the terms of the indenture, AmerisourceBergen and
the trustee will treat the Persons in whose names the notes, including the
Global Notes, are registered as the owners of the notes for the purpose of
receiving payments and for all other purposes. Consequently, neither
AmerisourceBergen, the trustee nor any agent of AmerisourceBergen or the trustee
has or will have any responsibility or liability for:
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(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised AmerisourceBergen that its current practice, upon receipt
of any payment in respect of securities such as the notes (including principal
and interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the trustee or AmerisourceBergen. Neither
AmerisourceBergen nor the trustee will be liable for any delay by DTC or any of
its Participants in identifying the beneficial owners of the notes, and
AmerisourceBergen and the trustee may conclusively rely on and will be protected
in relying on instructions from DTC or its nominee for all purposes.
Subject to the transfer restrictions set forth under "Notice to Investors,"
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Cedel will be effected in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes described herein, cross-market transfers between the Participants in DTC,
on the one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary; however, such cross-
market transactions will require delivery of instructions to Euroclear or Cedel,
as the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the relevant Global Note in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositories for Euroclear or Cedel.
DTC has advised AmerisourceBergen that it will take any action permitted to
be taken by a Holder of notes only at the direction of one or more Participants
to whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes, DTC reserves the right
to exchange the Global Notes for legended notes in certificated form, and to
distribute such notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Notes and the Regulation S
Global Notes among participants in DTC, Euroclear and Cedel, they are under no
obligation to perform or to continue to perform such procedures, and may
discontinue such procedures at any time. Neither AmerisourceBergen nor the
trustee nor any of their respective agents will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if:
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(1) DTC (a) notifies AmerisourceBergen that it is unwilling or unable to
continue as depositary for the Global Notes and AmerisourceBergen
fails to appoint a successor depositary or (b) has ceased to be a
clearing agency registered under the Exchange Act;
(2) AmerisourceBergen, at its option, notifies the trustee in writing that
it elects to cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default or Event of Default
with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests in
Global Notes will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures) and will bear the applicable restrictive legend
referred to in "Notice to Investors," unless that legend is not required by
applicable law.
Same Day Settlement and Payment
AmerisourceBergen will make payments in respect of the notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. AmerisourceBergen will make all payments
of principal, interest and premium and Liquidated Damages, if any, with respect
to Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the Holders of the Certificated Notes or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The notes represented by the Global Notes are expected to be eligible
to trade in the PORTAL market and to trade in DTC's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such notes will,
therefore, be required by DTC to be settled in immediately available funds.
AmerisourceBergen expects that secondary trading in any Certificated Notes will
also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a Business Day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised AmerisourceBergen that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the Business Day for
Euroclear or Cedel following DTC's settlement date.
Registration Rights; Liquidated Damages
AmerisourceBergen, the Guarantors and the Initial Purchasers entered into a
registration rights agreement on August 14, 2001. AmerisourceBergen has filed
this Exchange Offer Registration Statement (the "Exchange Offer Registration
Statement") pursuant to the registration rights agreement, offering to exchange
the old notes for publicly tradable the new notes having identical terms to
those of the old notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to the holders other old notes
who are able to make certain representations the opportunity to exchange their
old notes for the new notes.
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the proposed form of registration rights agreement
in its entirety because it, and not this description, defines your registration
rights as Holders of these notes. See "--Additional Information."
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Upon the effectiveness of the Exchange Offer Registration Statement,
AmerisourceBergen and the Guarantors will offer to the Holders of Transfer
Restricted Securities pursuant to the Exchange Offer who are able to make
certain representations the opportunity to exchange their Transfer Restricted
Securities for Exchange Notes.
If:
(1) AmerisourceBergen and the Guarantors are not
(a) required to file the Exchange Offer Registration Statement; or
(b) permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or SEC policy; or
(2) any Holder of Transfer Restricted Securities notifies
AmerisourceBergen prior to the 20th day following consummation of the
Exchange Offer that:
(a) it is prohibited by law or SEC policy from participating in the
Exchange Offer; or
(b) it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales; or
(c) it is a broker-dealer and owns notes acquired directly from
AmerisourceBergen or an affiliate of AmerisourceBergen,
AmerisourceBergen and the Guarantors will file with the SEC a Shelf Registration
Statement to cover resales of the notes by the Holders of the notes who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement.
AmerisourceBergen and the Guarantors will use their best efforts to cause
the applicable registration statement to be declared effective as promptly as
possible by the SEC.
For purposes of the preceding, "Transfer Restricted Securities" means each
note until:
the date on which such note has been exchanged by a Person other than
a broker-dealer for an Exchange Note in the Exchange Offer;
(1) following the exchange by a broker-dealer in the Exchange Offer of a
note for an Exchange Note, the date on which such Exchange Note is
sold to a purchaser who receives from such broker-dealer on or prior
to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement;
(2) the date on which such note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf
Registration Statement; or
(3) the date on which such note is distributed to the public pursuant to
Rule 144 under the Securities Act.
The registration rights agreement provides that:
AmerisourceBergen and the Guarantors will file an Exchange Offer
Registration Statement with the SEC on or prior to 90 days after the
closing of this offering;
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(4) AmerisourceBergen and the Guarantors will use all commercially
reasonable efforts to have the Exchange Offer Registration Statement
declared effective by the SEC on or prior to 180 days after the
closing of this offering;
(5) unless the Exchange Offer would not be permitted by applicable law or
SEC policy, AmerisourceBergen and the Guarantors will
(a) commence the Exchange Offer; and
(b) use all commercially reasonable efforts to issue on or prior to
30 Business Days, or longer, if required by the federal
securities laws, after the date on which the Exchange Offer
Registration Statement was declared effective by the SEC,
Exchange Notes in exchange for all notes tendered prior thereto
in the Exchange Offer; and
(6) if obligated to file the Shelf Registration Statement,
AmerisourceBergen and the Guarantors will use all commercially
reasonable efforts to file the Shelf Registration Statement with the
SEC on or prior to 60 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the SEC on or
prior to 120 days after such obligation arises.
If:
AmerisourceBergen and the Guarantors fail to file any of the
registration statements required by the registration rights agreement
on or before the date specified for such filing; or
(1) any of such registration statements is not declared effective by the
SEC on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); or
(2) AmerisourceBergen and the Guarantors fail to consummate the Exchange
Offer within 30 Business Days or longer if required by federal
securities laws, of the Effectiveness Target Date with respect to the
Exchange Offer Registration Statement; or
(3) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective
or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the registration rights agreement
(each such event referred to in clauses (1) through (4) above, a
"Registration Default"),
then AmerisourceBergen and the Guarantors will pay Liquidated Damages to each
Holder of notes, with respect to the first 90-day period immediately following
the occurrence of the first Registration Default in an amount equal to 0.25% per
annum of the principal amount of notes held by such Holder.
The amount of the Liquidated Damages will increase by an additional 0.25%
per annum of the principal amount of notes with respect to each subsequent 90-
day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages for all Registration Defaults of 1.0% per annum of
the principal amount of notes.
All accrued Liquidated Damages will be paid by AmerisourceBergen and the
Guarantors on each Damages Payment Date to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to Holders
of Certificated Notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of notes will be required to make certain representations to
AmerisourceBergen (as described in the registration rights agreement) in order
to participate in the Exchange Offer and will be required to deliver certain
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information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the registration rights agreement in order to have their notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above. By acquiring Transfer Restricted
Securities, a Holder will be deemed to have agreed to indemnify
AmerisourceBergen and the Guarantors against certain losses arising out of
information furnished by such Holder in writing for inclusion in any Shelf
Registration Statement. Holders of notes will also be required to suspend their
use of the prospectus included in the Shelf Registration Statement under certain
circumstances upon receipt of written notice to that effect from
AmerisourceBergen.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection
with, or in contemplation of, such other Person merging with or into,
or becoming a Subsidiary of, such specified Person, provided that
Indebtedness of such other Person that is redeemed, defeased, retired
or otherwise repaid immediately upon consummation of the transaction
by which such other Person is merged with or into or became a
Restricted Subsidiary of such Person shall not be Acquired Debt; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, plus 50 basis points.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings. No Person (other than AmerisourceBergen or any
Subsidiary of AmerisourceBergen) in whom a Receivables Subsidiary makes an
Investment in connection with a Qualified Receivables Transaction will be deemed
to be an Affiliate of AmerisourceBergen or any of its Subsidiaries solely by
reason of such Investment.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales or returns of inventory in the ordinary
course of business; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of
AmerisourceBergen and its Subsidiaries taken as a whole will be
governed by the provisions of the indenture described above under the
caption "--Repurchase at the Option of Holders--Change of Control"
and/or the provisions described above under the caption "--Certain
Covenants--Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of AmerisourceBergen's
Restricted Subsidiaries or the sale of Equity Interests in any of its
Restricted Subsidiaries.
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Notwithstanding the preceding, none of the following items will be deemed
to be Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $5.0 million;
(2) a transfer of assets between or among AmerisourceBergen and its
Subsidiaries;
(3) an issuance of Equity Interests by a Subsidiary to AmerisourceBergen
or to another Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business including dispositions
of assets that are obsolete or no longer useful in the business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) sales of accounts receivable or inventory and related assets of the
type specified in the definition of "Qualified Receivables
Transaction" to a Receivables Subsidiary for the fair market value
thereof, including cash in an amount at least equal to 75% of the book
value thereof as determined in accordance with GAAP, it being
understood that, for the purposes of this clause (6), notes received
in exchange for the transfer of accounts receivable or inventory and
related assets will be deemed cash if the Receivables Subsidiary or
other payor is required to repay said notes as soon as practicable
from available cash collections less amounts required to be
established as reserves pursuant to contractual agreements with
entities that are not Affiliates of AmerisourceBergen entered into as
part of a Qualified Receivables Transaction;
(7) transfers of accounts receivable or inventory and related assets of
the type specified in the definition of "Qualified Receivables
Transaction" (or a fractional undivided interest therein) by a
Receivables Subsidiary in a Qualified Receivables Transaction;
(8) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "--Certain Covenants--
Restricted Payments;"
(9) the sale or other disposition of distribution centers or warehouse
facilities and related assets that are sold or contracted for sale
within 18 months of the consummation of the Merger; and
(10) the creation of security interests otherwise permitted by the
indenture, including, without limitation, a pledge of assets otherwise
permitted by the indenture.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d) (3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
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(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Borrowing Base" means, as of any date, an amount equal to 50% of the book
value of the consolidated inventory of AmerisourceBergen and its Restricted
Subsidiaries as of the date of the most recently ended fiscal month prior to
such date, determined in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person, other than earnouts.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the
United States government (provided that the full faith and credit of
the United States is pledged in support of those securities) having
maturities of not more than one year from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of one year or less from the date of acquisition, bankers' acceptances
with maturities not exceeding one year and overnight bank deposits, in
each case, with any domestic commercial bank having capital and
surplus in excess of $500.0 million;
(4) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) obligations issued or fully guaranteed by any state of the United
States or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of
acquisition thereof and at the time of acquisition, having one of the
two highest ratings obtainable from either Moody's or S&P;
(6) commercial paper having the highest rating obtainable from Moody's or
S&P and in each case maturing within one year after the date of
acquisition; and
(7) money market funds at least 90% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (6) of this
definition.
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"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of AmerisourceBergen and its Restricted Subsidiaries taken as a
whole to any "person" (as that term is used in Section 13(d) (3) of
the Exchange Act) other than AmerisourceBergen or one of its
Restricted Subsidiaries;
(2) the adoption of a plan relating to the liquidation or dissolution of
AmerisourceBergen (other than in a transaction that complies with the
covenant described under "--Merger, Consolidation or Sale of Assets");
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person"
(as defined above), becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of AmerisourceBergen,
measured by voting power rather than number of shares; or
(4) the first day on which a majority of the members of the Board of
Directors of AmerisourceBergen are not Continuing Directors.
"Comparable Treasury Issue" means the United States Treasury Security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest of such Reference Treasury Dealer Quotations or
(B) if the trustee obtains fewer than three such Reference Treasury Dealer
Quotations, the average of all such Quotations.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized
by such Person or any of its Restricted Subsidiaries in connection
with an Asset Sale, to the extent such losses were deducted in
computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net of the
effect of all payments made or received pursuant to Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus
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(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period
to the extent that such depreciation, amortization and other non-cash
expenses were deducted in computing such Consolidated Net Income; plus
(5) all nonrecurring and unusual charges (including, without limitation,
restructuring, shutdown, severance, facility consolidation and merger
integration costs) taken by AmeriSource Health Corporation or Bergen
Brunswig Corporation on or before three years following the date of
the indenture to the extent that such charges were deducted in
computing such Consolidated Net Income; minus
(6) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business,
in each case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income or loss of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting will be included
only to the extent of the amount of dividends or distributions paid in
cash to the specified Person or a Restricted Subsidiary of the Person;
(2) the Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will
be excluded;
(4) the cumulative effect of a change in accounting principles will be
excluded;
(5) non-recurring charges taken by AmerisourceBergen in connection with
the Merger within three years after the date of the indenture will be
excluded; and
(6) the Net Income (but not loss) of any Unrestricted Subsidiary will be
excluded (except to the extent distributed to AmerisourceBergen or one
of its Restricted Subsidiaries).
"Consolidated Net Worth" means, with respect to any specified Person as of
any date, the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of AmerisourceBergen who:
(1) was a member of such Board of Directors on the date of the indenture;
or
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(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Credit Facilities" means, one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Non-Guarantors" means those certain Domestic Subsidiaries that
have been designated by AmerisourceBergen in an officers' certificate delivered
to the trustee as being Designated Non-Guarantors; provided that (i) in no event
may the Designated Non-Guarantors taken as a whole hold more than 5% of the
consolidated assets, or account for more than 5% of the consolidated revenues or
Consolidated Cash Flow, of AmerisourceBergen and its Restricted Subsidiaries,
calculated at the end of each fiscal quarter in accordance with GAAP on a
trailing four-quarter basis and (ii) in no event may any Restricted Subsidiary
be designated as a Designated Non-Guarantor at a time when a default has
occurred and is continuing under any indenture or Credit Facility of
AmerisourceBergen or any of its Restricted Subsidiaries. In the event that
following any fiscal quarter end, the Restricted Subsidiaries that have been
previously designated as Designated Non-Guarantors, when taken as a whole,
account for more than 5% of such consolidated assets of such fiscal quarter end
or more than 5% of such consolidated revenues or Consolidated Cash Flow during
such fiscal quarter, calculated in accordance with GAAP on a trailing four-
quarter basis, then AmerisourceBergen will cause any one or more of such
Restricted Subsidiaries to become Guarantors within 45 days of such fiscal
quarter end so that the Designated Non-Guarantors will not, when taken as a
whole, account for more than 5% of any such measures.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to require
AmerisourceBergen to repurchase such Capital Stock upon the occurrence of a
change of control or an asset sale will not constitute Disqualified Stock if the
terms of such repurchase or redemption rights are not more favorable to the
holders of such Capital Stock than the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
"Domestic Subsidiary" means any Restricted Subsidiary of AmerisourceBergen
that was formed under the laws of the United States or any state of the United
States or the District of Columbia or that guarantees or otherwise provides
direct credit support for any Indebtedness of AmerisourceBergen; provided that a
Restricted Subsidiary with assets having an aggregate fair market value of less
than $100,000 will not be deemed to be a Domestic Subsidiary unless and until it
acquires assets having an aggregate fair market value in excess of that amount.
"Equity Interests" means Capital Stock and all warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for, Capital Stock) and beneficial interests and trusts
created by a Receivables Subsidiary.
"Existing Indebtedness" means the aggregate principal amount of
Indebtedness of AmerisourceBergen and its Restricted Subsidiaries (other than
Indebtedness under Credit Facilities) in existence on the date of the indenture.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, including, without limitation,
amortization of debt issuance costs and original issue discount, non-
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cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letters of credit or bankers' acceptance
financings, and net of the effect of all payments made or received
pursuant to Hedging Obligations, but excluding amortization of debt
issuance costs incurred prior to the date of the indenture; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon;
plus
(4) the product of (a) all dividends, whether paid or accrued and whether
or not in cash, on any series of preferred stock of such Person or any
of its Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of AmerisourceBergen
(other than Disqualified Stock) or to AmerisourceBergen or a
Restricted Subsidiary of AmerisourceBergen times (b) a fraction, the
numerator of which is one and the denominator of which is one minus
the then current combined federal, state and local statutory tax rate
of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
and its Restricted Subsidiaries for any period, the ratio of the Consolidated
Cash Flow of such Person for such period to the Fixed Charges of such Person for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any
Indebtedness (other than ordinary working capital borrowings) or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio will be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-
quarter reference period or subsequent to such reference period and on
or prior to the Calculation Date will be given pro forma effect as if
they had occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period will be
calculated on a pro forma basis in accordance with Regulation S-X
under the Securities Act, but without giving effect to clause (3) of
the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded, but only
to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the specified Person or any of its
Subsidiaries following the Calculation Date.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates, foreign currency translation
and commodity prices.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and
(2) the principal amount of the Indebtedness, together with any interest
on the Indebtedness that is more than 30 days past due, in the case of
any other Indebtedness.
"Independent Investment Banker" means the Reference Treasury Dealers
appointed by the trustee after consultation with AmerisourceBergen.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commissions, travel, moving and similar advances to
officers and employees and loans and advances to customers and suppliers made in
the ordinary course of business), purchases or other acquisitions for
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consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If AmerisourceBergen or any Subsidiary of
AmerisourceBergen sells or otherwise disposes of any Equity Interests of any
direct or indirect Subsidiary of AmerisourceBergen such that, after giving
effect to any such sale or disposition, such Person is no longer a Subsidiary of
AmerisourceBergen, AmerisourceBergen will be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value of
the Equity Interests of such Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "--Certain Covenants--Restricted Payments." The acquisition
by AmerisourceBergen or any Subsidiary of AmerisourceBergen of a Person that
holds an Investment in a third Person will be deemed to be an Investment by
AmerisourceBergen or such Subsidiary in such third Person in an amount equal to
the fair market value of the Investment held by the acquired Person in such
third Person in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and, except in connection with any Qualified Receivables
Transaction, any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Merger" means the merger contemplated by the Agreement and Plan of Merger
among AABB Corporation (now known as AmerisourceBergen Corporation), AmeriSource
Health Corporation, Bergen Brunswig Corporation, A-Sub Acquisition Corp. and B-
Sub Acquisition Corp. dated March 16, 2001.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with: (a) any
Asset Sale or (b) the disposition of any securities by such Person or
any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
AmerisourceBergen or any of its Restricted Subsidiaries in respect of any Asset
Sale (including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result of the Asset Sale, taxes paid or
payable as a result of the Asset Sale, in each case, after taking into account
any available tax credits or deductions and any tax sharing arrangements, and
amounts required to be applied to the repayment of Indebtedness, and any reserve
for adjustment in respect of the sale price of such asset or assets established
in accordance with GAAP.
"New Credit Facility" means the Credit Agreement to be dated the date of
the Merger, among AmerisourceBergen, The Chase Manhattan Bank, Bank of America,
N.A., Credit Suisse First Boston Corporation and the several lenders named
therein entered into pursuant to that certain Commitment Letter dated as of July
17, 2001.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither AmerisourceBergen nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute
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Indebtedness), (b) is directly or indirectly liable as a guarantor or
otherwise or (c) constitutes the lender;
(2) no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action
against an Unrestricted Subsidiary) would permit upon notice, lapse of
time or both any holder of any other Indebtedness of AmerisourceBergen
or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment of the Indebtedness to be
accelerated or payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of AmerisourceBergen or
any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any business that derives a majority of its
revenues from the business engaged in by AmerisourceBergen and its Restricted
Subsidiaries on the date of original issuance of the notes and/or activities
that are reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which AmerisourceBergen and its
Restricted Subsidiaries are engaged on the date of original issuance of the
notes.
"Permitted Investments" means:
(1) any Investment in AmerisourceBergen or in a Restricted Subsidiary of
AmerisourceBergen;
(2) any Investment in Cash Equivalents;
(3) any Investment by AmerisourceBergen or any Restricted Subsidiary of
AmerisourceBergen in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of AmerisourceBergen;
or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, AmerisourceBergen or a Restricted Subsidiary of
AmerisourceBergen;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales;"
(5) any acquisition of assets to the extent acquired in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of
AmerisourceBergen;
(6) any Investments received in compromise of, or in respect of,
obligations of such persons incurred in the ordinary course of trade
creditors or customers that were incurred in the ordinary course of
business, including, but not limited to, pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or
insolvency of any trade creditor or customer;
(7) Hedging Obligations;
(8) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or
other Person established by such Receivables Subsidiary to effect such
Qualified Receivables Transaction; and any other Investment by
AmerisourceBergen or a Subsidiary of AmerisourceBergen in a
Receivables Subsidiary or any
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Investment by a Receivables Subsidiary in any other Person in
connection with a Qualified Receivables Transaction, provided that
such other Investment is in the form of a note or other instrument
that the Receivables Subsidiary or other Person is required to repay
as soon as practicable from available cash collections less amounts
required to be established as reserves pursuant to contractual
agreements with entities that are not Affiliates of AmerisourceBergen
entered into as part of a Qualified Receivables Transaction;
(9) Investments existing on the date of the indenture;
(10) loans and advances to officers, directors, members and employees for
business-related travel expenses, moving expenses and other similar
expenses, in each case, incurred in the ordinary course of business
not to exceed $10.0 million at any one time outstanding;
(11) loans and advances to officers, directors, members and employees in
connection with the award of convertible bonds or stock under a stock
incentive plan, stock option plan or other equity-based compensation
plan arrangement not to exceed $10.0 million in any one year;
(12) or guarantees for the benefit of, customers or suppliers that do not
in the aggregate exceed $20.0 million at any one time outstanding; and
(13) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (13) that are at the
time outstanding not to exceed $25.0 million.
"Permitted Liens" means any of the following:
(1) Liens securing Indebtedness under Credit Facilities;
(2) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with or acquired by
AmerisourceBergen or any Restricted Subsidiary of AmerisourceBergen;
provided that such Liens were in existence prior to the contemplation
of such merger or consolidation or acquisition and do not extend to
any assets other than those of the Person merged into or consolidated
with AmerisourceBergen or the Restricted Subsidiary;
(3) Liens on property existing at the time of acquisition of the property
by AmerisourceBergen or any Restricted Subsidiary of
AmerisourceBergen, provided that such Liens were in existence prior to
the contemplation of such acquisition;
(4) Liens to secure the performance of statutory obligations, surety or
appeal bonds, bid bonds, payment bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of
business;
(5) Liens existing on the date of the indenture;
(6) Liens in favor of AmerisourceBergen or the Restricted Subsidiaries;
(7) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as is
required in conformity with GAAP has been made therefor;
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(8) Liens on assets of AmerisourceBergen or a Receivables Subsidiary
incurred in connection with a Qualified Receivables Transaction;
(9) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries;
(10) Liens to secure Indebtedness of a Restricted Subsidiary to
AmerisourceBergen or another of its Restricted Subsidiaries;
(11) Liens on any property or asset acquired by AmerisourceBergen or any of
its Restricted Subsidiaries in favor of the seller of such property or
asset and construction mortgages on real property, in each case,
created within six months after the date of acquisition, construction
or improvement of such property or asset by AmerisourceBergen or such
Restricted Subsidiary to secure the purchase price or other obligation
of AmerisourceBergen or such Restricted Subsidiary to the seller of
such property or asset or the construction or improvement cost of such
property in an amount up to the total cost of the acquisition,
construction or improvement of such property or asset; provided that
in each case, such Lien does not extend to any other property or asset
of AmerisourceBergen and its Restricted Subsidiaries;
(12) Liens incurred or pledges and deposits made in connection with
workers' compensation, unemployment insurance and other social
security benefits;
(13) Liens imposed by law, such as mechanics', carriers', warehousemen's,
materialmen's, and vendors' Liens, incurred in good faith in the
ordinary course of business with respect to amounts not yet delinquent
or being contested in good faith by appropriate proceedings if a
reserve or other appropriate provisions, if any, as shall be required
by GAAP shall have been made therefor;
(14) financing statements granted with respect to personal property leased
by AmerisourceBergen and its Restricted Subsidiaries pursuant to
leases considered operating leases in accordance with GAAP, provided
that such financing statements are granted solely in connection with
such leases; and Liens to secure Capital Lease Obligations permitted
by clause (15) of the second paragraph of the covenant entitled "--
Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such
Indebtedness;
(15) judgment Liens to the extent that such judgments do not cause or
constitute a Default or an Event of Default;
(16) Liens securing Permitted Refinancing Indebtedness incurred to
refinance Indebtedness that was secured by a Lien permitted under the
indenture; provided that any such Lien shall not extend to or cover
any assets or property not securing the Indebtedness so refinanced and
that such refinancing does not, directly or indirectly, result in an
increase in the aggregate amount of secured Indebtedness of
AmerisourceBergen and its Restricted Subsidiaries; and
(17) any extension or renewal, or successive extensions or renewals, in
whole or in part, of Liens permitted pursuant to the foregoing clauses
(1) through (16) provided that no such extension or renewal Lien shall
(A) secure more than the amount of Indebtedness or other obligations
secured by the Lien being so extended or renewed or (B) extend to any
property or assets not subject to the Lien being so extended or
renewed; and
(18) Liens incurred in the ordinary course of business of AmerisourceBergen
or any Restricted Subsidiary of AmerisourceBergen with respect to
obligations that do not exceed $25.0 million at any one time
outstanding.
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"Permitted Refinancing Indebtedness" means any Indebtedness of
AmerisourceBergen or any of its Restricted Subsidiaries issued in exchange for,
or the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness of AmerisourceBergen or any of its
Restricted Subsidiaries (other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal
amount (or accreted value, if applicable) of the Indebtedness
extended, refinanced, renewed, replaced, defeased or refunded (plus
all accrued interest on the Indebtedness and the amount of all
expenses and premiums incurred in connection therewith) (the "Original
Principal Amount"); provided, however, if the Indebtedness exceeds the
Original Principal Amount, the Permitted Refinancing Indebtedness
shall be limited to the Original Principal Amount;
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of
payment to, the notes on terms at least as favorable to the Holders of
notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded; and
(4) such Indebtedness is incurred either by AmerisourceBergen or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Qualified Receivables Transaction" means any transaction or series of
transactions entered into by AmerisourceBergen or any of its Subsidiaries
pursuant to which AmerisourceBergen or any of its Subsidiaries sells, conveys or
otherwise transfers to (i) a Receivables Subsidiary (in the case of a transfer
by AmerisourceBergen or any of its Subsidiaries) and (ii) any other Person (in
the case of a transfer by a Receivables Subsidiary), or grants a security
interest in, any accounts receivable (whether now existing or arising in the
future) or inventory of AmerisourceBergen or any of its Subsidiaries, and any
assets related thereto including, without limitation, all collateral securing
such accounts receivable, all contracts and all guarantees or other obligations
in respect of such accounts receivable or inventory, proceeds of such accounts
receivable and other assets which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable or inventory except
for Indebtedness used to extend, refinance, replace, defease or refund the
Credit Facilities.
"Receivables Subsidiary" means a Subsidiary of AmerisourceBergen which
engages in no activities other than in connection with the financing of accounts
receivable or inventory and which is designated by the Board of Directors of
AmerisourceBergen (as provided below) as a Receivables Subsidiary (a) no portion
of the Indebtedness or any other Obligations (contingent or otherwise) of which
(i) is guaranteed by AmerisourceBergen or any Subsidiary of AmerisourceBergen
(excluding guarantees of Obligations (other than the principal of, and interest
on, Indebtedness) pursuant to representations, warranties, covenants and
indemnities entered into in the ordinary course of business in connection with a
Qualified Receivables Transaction), (ii) is recourse to or obligates
AmerisourceBergen or any Subsidiary of AmerisourceBergen in any way other than
pursuant to representations, warranties, covenants and indemnities entered into
in the ordinary course of business in connection with a Qualified Receivables
Transaction or (iii) subjects any property or asset of AmerisourceBergen or any
Subsidiary of
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AmerisourceBergen (other than accounts receivable or inventory and related
assets as provided in the definition of "Qualified Receivables Transaction"),
directly or indirectly, contingently or otherwise, to the satisfaction thereof,
other than pursuant to representations, warranties, covenants and indemnities
entered into in the ordinary course of business in connection with a Qualified
Receivables Transaction, (b) with which neither AmerisourceBergen nor any
Subsidiary of AmerisourceBergen has any material contract, agreement,
arrangement or understanding other than on terms customary for securitization of
receivables or inventory and (c) with which neither AmerisourceBergen nor any
Subsidiary of AmerisourceBergen has any obligation to maintain or preserve such
Subsidiary's financial condition or cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors of
AmerisourceBergen will be evidenced to the trustee by filing with the trustee a
certified copy of the resolution of the Board of Directors of AmerisourceBergen
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions.
"Reference Treasury Dealer" means Credit Suisse First Boston Corporation
and its successors; provided, however, that if Credit Suisse First Boston
Corporation shall cease to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), AmerisourceBergen shall substitute
therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average as determined by
the trustee, of the bid and asked prices of the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such redemption date.
"Remaining Scheduled Payments" means, with respect to each note to be
redeemed, the remaining scheduled payments of the principal thereof and interest
thereon that would be due after the related redemption date but for such
redemption; provided, however, that, if such redemption date is not an interest
payment date with respect to such note, the amount of the next succeeding
scheduled interest payment thereon will be reduced by the amount of interest
accrued thereon to such redemption date.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees of the corporation,
association or other business entity is at the time owned or
controlled, directly or indirectly, by that Person or one or more of
the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).
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"Unrestricted Subsidiary" means any Subsidiary of AmerisourceBergen that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with AmerisourceBergen or any Restricted Subsidiary of
AmerisourceBergen unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to
AmerisourceBergen or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of
AmerisourceBergen;
(3) is a Person with respect to which neither AmerisourceBergen nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a)
to subscribe for additional Equity Interests or (b) to maintain or
preserve such Person's financial condition or to cause such Person to
achieve any specified levels of operating results;
(4) is not guaranteeing or otherwise providing credit support for any
Indebtedness of AmerisourceBergen or any of its Restricted
Subsidiaries; and
(5) has at least one director on its Board of Directors that is not a
director or executive officer of AmerisourceBergen or any of its
Restricted Subsidiaries and has at least one executive officer that is
not a director or executive officer of AmerisourceBergen or any of its
Restricted Subsidiaries.
Any designation of a Subsidiary of AmerisourceBergen as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary
will be deemed to be incurred by a Restricted Subsidiary of AmerisourceBergen as
of such date and, if such Indebtedness is not permitted to be incurred as of
such date under the covenant described under the caption "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock," AmerisourceBergen
will be in default of such covenant. The Board of Directors of AmerisourceBergen
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation will be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of AmerisourceBergen of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation will only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period and (ii) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote or readily convertible into Capital
Stock of such Person that is entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity,
in respect of the Indebtedness, by (b) the number of years (calculated
to the nearest one-twelfth) that will elapse between such date and the
making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following discussion is a summary of the material United States federal
income tax consequences relevant to the exchange offer and the ownership and
disposition of the new notes, but does not purport to be a complete analysis of
all potential tax effects. The discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), United States Treasury Regulations issued
thereunder, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which are subject to change at any time. Any
such change may be applied retroactively in a manner that could adversely affect
a holder of the notes. This discussion does not address all of the federal
income tax consequences that may be relevant to a holder in light of such
holder's particular circumstances or to holders subject to special rules, such
as certain financial institutions, U.S. expatriates, insurance companies,
dealers in securities or currencies, traders in securities, holders whose
functional currency is not the U.S. dollar, tax-exempt organizations and persons
holding the notes as part of a "straddle," "hedge," "conversion transaction" or
other integrated transaction. In addition, this discussion is limited to persons
who purchased the old notes for cash at original issue and at their "issue
price" within the meaning of Section 1273 of the Code (i.e., the first price at
which a substantial amount of notes are sold to the public for cash) who are
exchanging old notes for new notes in the exchange offer. Moreover, the effect
of any applicable state, local or foreign tax laws is not discussed. The
discussion assumes that the old notes and the new notes are held as "capital
assets" within the meaning of Section 1221 of the Code.
As used herein, "United States Holder" means a beneficial owner of the
notes who or that is:
. a citizen or resident of the United States, including an alien
individual who is a lawful permanent resident of the United States or
meets the "substantial presence" test under Section 7701(b) of the Code;
. a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or political
subdivision thereof;
. an estate, the income of which is subject to United States federal
income tax regardless of its source; or
. a trust, if a United States court can exercise primary supervision over
the administration of the trust and one or more United States persons
can control all substantial trust decisions, or, if the trust was in
existence on August 20, 1996, has elected to continue to be treated as a
United States person.
We have not sought and will not seek any rulings from the Internal Revenue
Service (the "IRS") with respect to the matters discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the exchange offer, ownership or disposition of the new notes or
that any such position would not be sustained. Tax consequences to a partner of
a partnership holding the notes generally depend on the status of the partner
and the activities of the partnership. Such partner should consult its tax
advisor as to the tax consequences.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
REGARD TO THE APPLICATION OF THE TAX CONSEQUENCES DISCUSSED BELOW TO
THEIR PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE,
LOCAL, FOREIGN OR OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS.
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United States Holders
Exchange Offer
Interest
Payments of stated interest on the new notes generally will be taxable to a
United States Holder as ordinary income at the time that such payments are
received or accrued, in accordance with such United States Holder's method of
accounting for United States federal income tax purposes.
Sale or Other Taxable Disposition of the Notes
A United States Holder will recognize gain or loss on the sale, exchange,
redemption, retirement or other taxable disposition of a new note equal to the
difference between the amount realized upon the disposition (less a portion
allocable to any accrued and unpaid interest, which will be taxable as ordinary
income) and the United States Holder's adjusted tax basis in the new notes. A
United States Holder who exchanged old notes for new notes in the exchange offer
will have the same basis in the new note that the holder had in the old notes.
Gain or loss recognized on the sale of a new note will generally be a capital
gain or loss, and will be a long-term capital gain or loss if the United States
Holder has held the note for more than one year. Otherwise, such gain or loss
will be a short-term capital gain or loss. Capital losses may generally only be
deducted against capital gains. A holder's holding period for the old notes will
be added to the holder's holding period for the new notes, if the holder
participates in the exchange offer.
The exchange of the old notes for new notes in the exchange offer should
not constitute a taxable exchange because there should not be a significant
modification of the notes. Instead, the new notes will be treated as a
continuation of the old notes for federal income tax purposes. As a result, (i)
a United States Holder should not recognize a taxable gain or loss as a result
of exchanging such holder's notes; (ii) the holding period of the notes received
should include the holding period of the notes exchanged therefor and (iii) the
adjusted tax basis of the notes received should be the same as the adjusted tax
basis of the notes exchanged therefor immediately before such exchange.
Backup Withholding
A United States Holder may be subject to a backup withholding tax (at
varying rates up to 31%) when such holder receives interest and principal
payments on the new notes held or upon the proceeds received upon the sale or
other disposition of such new notes. Certain holders (including, among others,
corporations and certain tax-exempt organizations) are generally not subject to
backup withholding. A United States Holder will be subject to this backup
withholding tax if such holder is not otherwise exempt and such holder:
. fails to furnish its taxpayer identification number ("TIN"), which, for
an individual, is ordinarily his or her social security number;
. furnishes an incorrect TIN;
. is notified by the IRS that it has failed to properly report payments of
interest or dividends; or
. fails to certify, under penalties of perjury, that it has furnished a
correct TIN and that the IRS has not notified the United States Holder
that it is subject to backup withholding.
United States Holders should consult their personal tax advisor regarding
their qualification for an exemption from backup withholding and the procedures
for obtaining such an exemption, if applicable. The backup withholding tax is
not an additional tax and taxpayers may use amounts withheld as a credit against
their United States federal income tax liability or may claim a refund as long
as they timely provide certain information to the IRS.
Non-United States Holders
Definition of Non-United States Holders; Interest Payments and Gains from
Dispositions
A Non-United States Holder is a beneficial owner of the notes who is not a
United States Holder.
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Interest Payments
Interest paid to a Non-United States Holder will not be subject to United
States federal withholding tax of 30% (or, if applicable, a lower treaty rate)
provided that:
. such holder does not directly or indirectly, actually or constructively
own 10% or more of the total combined voting power of all of our classes
of stock;
. such holder is not a controlled foreign corporation that is related to
us through stock ownership and is not a bank that received the notes on
an extension of credit made pursuant to a loan agreement entered into in
the ordinary course of its trade or business; and
. either (i) the Non-United States Holder certifies in a statement to us
or our paying agent, under penalties of perjury, that it is not a
"United States person" within the meaning of the Code and provides its
name or address or (ii) a securities clearing organization, bank or
other financial institution that holds customers' securities in the
ordinary course of its trade or business and holds the notes on behalf
of the Non-United States Holder certifies to us or our paying agent
under penalties of perjury that it, or the financial institution between
it and the Non-United States Holder, has received from the Non-United
States Holder a statement, under penalties of perjury, that such holder
is not a "United States person" and provides us or our paying agent with
a copy of such statement.
The certification requirement described above may require a Non-United
States Holder that provides an IRS form, or that claims the benefit of an income
tax treaty, to also provide its United States taxpayer identification number.
The applicable regulations generally also require, in the case of a note held by
a foreign partnership, that:
. the certification described above be provided by the partners; and
. the partnership provide certain information.
Further, a look-through rule will apply in the case of tiered partnerships.
Special rules are applicable to intermediaries. Prospective investors should
consult their tax advisors regarding the certification requirements for non-
United States persons.
Gains from Dispositions
A Non-United States Holder will generally not be subject to United States
federal income tax or withholding tax on gain recognized on the sale, exchange,
redemption, retirement or other disposition of a new note. However, a Non-United
States Holder may be subject to tax on such gain if such holder is an individual
who was present in the United States for 183 days or more in the taxable year of
the disposition and certain other conditions are met, in which case such holder
may have to pay a United States federal income tax of 30% (or, if applicable, a
lower treaty rate) on such gain. Also, the Non-United States Holder may be
subject to tax if the Non-United States Holder was a citizen or resident of the
United States and is subject to special rules that apply to certain expatriates.
Income or Gain Effectively Connected With a United States Trade or Business
If interest or gain from a disposition of the new notes is effectively
connected with a Non-United States Holder's conduct of a United States trade or
business, or if an income tax treaty applies and the Non-United States Holder
maintains a United States "permanent establishment" to which the interest or
gain is generally attributable, the Non-United States Holder may be subject to
United States federal income tax on the interest or gain on a net basis in the
same manner as if it were a United States Holder. If interest income received
with respect to the notes is taxable on a net basis, the 30% withholding tax
described above will not apply (assuming an appropriate certification is
provided). A foreign corporation that is a holder of a new note also may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments,
unless it qualifies for a lower rate under an applicable income tax treaty. For
this purpose, interest on a new note or gain recognized on the disposition of a
new note will be included in earnings and profits if the interest or gain is
effectively connected with the conduct by the foreign corporation of a trade or
business in the United States.
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Backup Withholding and Information Reporting
Backup withholding will generally not apply to payments made by us or our
paying agents, in their capacities as such, to a Non-United States Holder of a
new note if the holder has provided the required certification that it is not a
United States person as described above. Payments of the proceeds from a
disposition by a Non-United States Holder of a new note made to or through a
foreign office of a broker will not be subject to information reporting or
backup withholding, except that information reporting (but generally not backup
withholding) may apply to those payments if the broker is:
. a United States person;
. a controlled foreign corporation for United States federal income tax
purposes;
. a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-
year period; or
. a foreign partnership, if at any time during its tax year, one or more
of its partners are United States persons, as defined in Treasury
regulations, who in the aggregate hold more than 50% of the income or
capital interest in the partnership or if, at any time during its tax
year, the foreign partnership is engaged in a United States trade or
business.
Payment of the proceeds from a disposition by a Non-United States Holder of
a new note made to or through the United States office of a broker is generally
subject to information reporting and backup withholding unless the holder or
beneficial owner certifies as to its taxpayer identification number or otherwise
establishes an exemption from information reporting and backup withholding.
Non-United States Holders should consult their own tax advisors regarding
application of withholding and backup withholding in their particular
circumstance and the availability of and procedure for obtaining an exemption
from withholding and backup withholding under current Treasury regulations. In
this regard, the current Treasury regulations provide for certain reliance
standards with respect to certifications under which a certification may not be
relied on if we or our agent (or other payor) knows or has reasons to know that
the certification may be false. Any amounts withheld under the backup
withholding rules from a payment to a Non-United States Holder will be allowed
as a credit against the holder's United States federal income tax liability or
may claim a refund, provided the required information is furnished timely to the
IRS.
-109-
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
the old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of 180 days after the
expiration date of the exchange offer, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until January 28, 2002 (90 days after the date of this
prospectus), all dealers effecting transactions in the new notes may be required
to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by broker-
dealers. New notes received by broker-dealers for their own account pursuant to
the exchange offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of those methods of resale, at market
prices prevailing at the time of resale, at prices related to prevailing market
prices or negotiated prices. Any resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
of the new notes. Any broker-dealer that resells new notes that were received by
it for its own account pursuant to the exchange offer and any broker or dealer
that participates in a distribution of the new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
resale of new notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offer,
we will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holders of the
notes) other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the securities (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
-110-
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Each of AmeriSource and Bergen was previously subject to the informational
reporting requirements of the Securities Exchange Act of 1934, as amended, and
filed periodic reports and other information with the SEC. These documents
include specific information regarding AmerisourceBergen.
AmerisourceBergen is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended, and files periodic reports and
other information with the SEC. You may read and copy any document we file with
the SEC at the public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 to obtain information on the
operation of the public reference room. Our SEC filings are also available over
the Internet at the SEC's website at www.sec.gov. Copies of such material can
also be obtained from us upon request.
While any notes remain outstanding, we will make available, on request, to
any holder and any prospective purchaser of the notes the information required
pursuant to Rule 144A(d)(4) under the Securities Act during any period in which
we are not subject to Section 13 or 15(d) of the Exchange Act.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act of 1933, covering the notes to be issued in the exchange offer
(Registration No. 333-71942). This prospectus, which is a part of the
registration statement, does not contain all of the information included in the
registration statement. Any statement made in this prospectus concerning the
contents of any contract, agreement or other document is not necessarily
complete. For further information regarding our company and the notes to be
issued in the exchange offer, please reference the registration statement,
including its exhibits. If we have filed any contract, agreement or other
document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the documents or matter involved.
Copies of the registration statement, including all related exhibits and
schedules, may be inspected without charge at the public reference facilities
maintained by the SEC, or obtained at prescribed rates from the Public Reference
Section of the SEC. In addition, you may request a copy of any of these filings,
at no cost, by writing or telephoning us at the following address:
AmerisourceBergen Corporation 1300 Morris Drive, Suite 100, Chesterbrook,
Pennsylvania 19087; the telephone number at that address is (610) 727-7000.
LEGAL MATTERS
Certain legal matters in connection with the new notes being offered will
be passed upon for us by Dechert, Philadelphia, Pennsylvania.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
balance sheet of AmerisourceBergen Corporation as of March 31, 2001, as set
forth in their report which is incorporated by refence in this prospectus and
elsewhere in this registration statement. AmerisourceBergen's consolidated
balance sheet is incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedules of AmeriSource Health Corporation included in
AmeriSource's Annual Report on Form 10-K for the year ended September 30, 2000,
as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in this registration statement. AmeriSource's
consolidated financial statements and schedules are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
-111-
The consolidated financial statements and financial statement schedule
incorporated in this prospectus by reference from the Bergen Brunwig Corporation
Annual Report on Form 10-K as of September 30, 2000 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
INCORPORATION OF DOCUMENTS BY REFERENCE
We have elected to "incorporate by reference" into this prospectus certain
of the information we file with the SEC under the Securities Exchange Act of
1934. This means that we are disclosing important information to you by
referring you to those filings. The information we incorporate by reference is
considered a part of this prospectus, and subsequent information that we file
with the SEC will automatically update and supercede this information. Any
information which is subsequently modified or superseded will not constitute a
part of this prospectus, except as so modified or superceded. We incorporate by
reference the "Security Ownership of Certain Beneficial Owners and Management,"
"Compensation of Directors," "Management" and "Certain Relationships and
Transactions" sections from the proxy statement of AmeriSource filed on Form DEF
14A on January 26, 2001, the annual report of AmeriSource filed on Form 10-K on
December 20, 2000, the quarterly reports of AmeriSource filed on Form 10-Q on
February 13, 2001, May 14, 2001 and August 14, 2001, respectively, the "Director
Compensation," "Beneficial Ownership of Securities," "Compensation of Executive
Officers" and "Certain Transactions" sections from the proxy statement of Bergen
filed on Form DEF 14A on January 12, 2001, the annual report of Bergen filed on
Form 10-K on December 29, 2000, the quarterly reports of Bergen filed on Form
10-Q on February 14, 2001, May 14, 2001 and August 14, 2001, respectively, the
AmerisourceBergen's Registration Statement filed on Form S-4/A on July 27, 2001
and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or
15 (d) of the Securities Exchange Act of 1934 after the date of this prospectus
and before the Exchange Offer to which this prospectus relates is terminated.
Upon written or oral request, we will provide you with a copy of any of the
incorporated documents without charge (not including exhibits to the documents
unless the exhibits are specifically incorporated by reference into the
documents). You may submit such a request for this material at the following
address and telephone number:
Investor Relations
AmerisourceBergen Corporation
1300 Morris Drive, Suite 100
Chesterbrook, Pennsylvania 19087
(610) 727-7000
-112-
AMERISOURCEBERGEN CORPORATION
INDEX TO CONSOLIDATED BALANCE SHEET
Consolidated Balance Sheet as of June 30, 2001........................ F-2
Note to Consolidated Balance Sheet.................................... F-3
F-1
AMERISOURCEBERGEN CORPORATION
CONSOLIDATED BALANCE SHEET
June 30, 2001
(unaudited)
Assets
Total assets............................................................... $ --
===========
Liabilities and Stockholders' Equity
Liabilities................................................................ $ --
Stockholders' equity:
Common stock, $.01 par value, 100 shares authorized, issued
and outstanding....................................................... 1
Subscriptions receivable................................................. (1)
----------
Total stockholders' equity................................................. --
Total liabilities and stockholders' equity................................. $ --
==========
See accompanying note.
F-2
AMERISOURCEBERGEN CORPORATION
NOTE TO CONSOLIDATED BALANCE SHEET
NOTE 1. Organization and Basis of Presentation.
AmerisourceBergen Corporation (formerly AmeriSource-Bergen Corporation)
(the "Company") was incorporated in the state of Delaware on March 16, 2001. The
Company was formed in connection with the merger (the "Merger") of AmeriSource
Health Corporation ("AmeriSource") and Bergen Brunswig Corporation ("Bergen").
Upon completion of the Merger on August 29, 2001, AmeriSource and Bergen each
became wholly owned subsidiaries of the Company. Other than its formation, the
Company and its subsidiaries had not conducted any activities as of June 30,
2001.
The consolidated balance sheet includes the accounts of the Company and its
two wholly-owned subsidiaries, A-Sub Acquisition Corp. and B-Sub Acquisition
Corp. Intercompany accounts have been eliminated.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
balance sheet.
The accompanying unaudited consolidated balance sheet has been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and Rule 10-01 of Regulation S-X. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary to present fairly the financial position as of June 30,
2001 have been included. Certain information and footnote disclosures normally
included in financial statements presented in accordance with accounting
principals generally accepted in the United States, but which are not required
for interim reporting purposes, have been omitted.
F-3